OPEC said on Wednesday it had offset a drop in sanctions-hit Iranian oil exports and lowered the 2019 forecast of demand for its crude, underlining the challenge the producer group faces to prevent a glut even after last week’s decision to trim output.
In a monthly report, the Organization of the Petroleum Exporting Countries said 2019 demand for its crude would fall to 31.44 million barrels per day, 100,000 bpd less than predicted last month and 1.53 million less than it currently produces.
Worried by a drop in oil prices and rising supplies, OPEC and its allies including Russia last week agreed to return to supply cuts next year. They pledged to lower output by 1.2 million bpd, of which OPEC’s share is 800,000 bpd.
OPEC expects global oil demand to slow next year and sees little support from the economic backdrop.
“Rising trade tensions, monetary tightening and geopolitical challenges are among the issues that skew economic risks even further to the downside in 2019,” OPEC said in the report. “The upside appears limited.”
The supply cut was a policy U-turn after the producer alliance known as OPEC+ had agreed in June to boost supply amid pressure from U.S. President Donald Trump to lower prices and cover an expected shortfall in Iranian exports.
OPEC changed course after prices dropped steeply from a four-year high above $86 a barrel in October on concern that demand was weakening amid adequate supply. Crude rose on Wednesday to trade above $61 a barrel.
In another sign of excess supply, OPEC’s report on Wednesday said oil inventories in developed economies had risen back above the five-year average in October.
Supply cuts that began in 2017 by OPEC and its allies had previously erased an inventory overhang that weighed on prices.
FILLING IRAN GAP
In the report, OPEC said its oil output fell by only 11,000 bpd month-on-month to 32.97 million bpd in November, despite the reimposition of sanctions on Iran.
Iranian output posted the biggest decline, of 380,000 bpd. This was offset by increases of 377,000 bpd from top exporter Saudi Arabia and an extra 71,000 bpd from the United Arab Emirates.
Saudi Arabia told OPEC it pumped at a record rate of 11.093 million bpd.
The figures suggest there will still be a surplus in the market next year should OPEC fully deliver the 800,000-bpd cut and other things remain equal, although this could be eroded by a further decline in Iran or unplanned outages in other nations.
Qatar plans to leave OPEC in 2019 but, for now, remains in the OPEC group in the forecasts.