OPEC delivered a downbeat oil market outlook for the rest of 2019 on Friday as economic growth slows and highlighted challenges in 2020 as rivals pump more, building a case to keep up an OPEC-led pact to curb supply.
In a monthly report, the Organization of Petroleum Exporting Countries cut its forecast for global oil demand growth in 2019 by 40,000 barrels a day (b/d) to 1.10 million b/d and indicated the market will be in slight surplus in 2020.
The bearish outlook due to slowing economies amid the U.S.-China trade dispute and Brexit could press the case for OPEC and allies including Russia to maintain a policy of cutting output to support prices. Already, a Saudi official has hinted at further steps to support the market.
“While the outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil demand growth, it remains critical to closely monitor the supply/demand balance and assist market stability in the months ahead,” OPEC said in the report.
Oil briefly pared an earlier gain after the report was released and was trading below US$59 a barrel.
Despite the OPEC-led cut, oil has tumbled from April’s 2019 peak above US$75 pressured by trade concerns and an economic slowdown.
OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million b/d. The alliance, known as OPEC+, in July renewed the pact until March 2020 to avoid a buildup of inventories that could hit prices.
OPEC left its forecast for 2020 oil demand growth at 1.14 million b/d, up slightly from this year. But OPEC added that its forecast for 2020 economic growth faced downside risk.
“The risk to global economic growth remains skewed to the downside,” the report said. “Especially trade-related developments will need to be thoroughly reviewed in the coming weeks with some likelihood of a further downward revision in September.”
OPEC trimmed its global economic growth forecast to 3.1 per cent from 3.2 per cent and, for now, kept its 2020 forecast at 3.2 per cent.
The report also said oil inventories in developed economies rose in June, suggesting a trend that could raise OPEC concern over a possible oil glut.
Stocks in June exceeded the five-year average – a yardstick OPEC watches closely – by 67 million barrels.
This is despite the supply cuts of OPEC+ and additional involuntary losses in Iran and Venezuela, two OPEC members which are under U.S. sanctions.
OPEC deepened its cuts in July, the report showed. According to figures OPEC collects from secondary sources, output from all 14 members fell by 246,000 b/d from June to 29.61 million b/d as Saudi Arabia cut supply further.
OPEC and its partners have been limiting supply since 2017, helping to clear a supply glut that built up in 2014-2016 when producers pumped at will, and revive prices.
The policy has been giving a sustained boost to U.S. shale and other rival supply, and the report suggests the world will need significantly less OPEC crude next year.
The demand for OPEC crude will average 29.41 million b/d next year, OPEC said, down 1.3 million b/d from this year. Still, the 2020 forecast was raised 140,000 b/d from last month’s forecast.
The report suggests there will be a 2020 supply surplus of 200,000 b/d if OPEC keeps pumping at July’s rate and other things remain equal. Last month’s report had implied a larger surplus of over 500,000 b/d.