OPEC on Wednesday forecast world demand for its crude will decline next year as growth in consumption slows and rivals pump more, pointing to the return of an oil market surplus despite an OPEC-led pact to restrain supplies.
Giving its first 2019 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 32.18 million barrels per day (bpd.) of crude from its 15 members next year, down 760,000 bpd. from this year.
The drop in demand for OPEC crude means there will be less strain on producers such as Saudi Arabia in making up for supply losses such as falling Venezuelan and Libyan output, and an imminent drop in Iranian exports as U.S. sanctions return.
“Following the robust growth seen this year, oil market developments are expected to slightly moderate in 2019, with the world economy and global oil demand forecasts to grow slightly less,” OPEC said in the report.
Oil topped $80 a barrel this year for the first time since 2014, boosted by OPEC-led output cuts and involuntary supply losses. U.S. President Donald Trump has been urging Saudi Arabia and OPEC to raise output to cool prices.
OPEC and a group of non-OPEC countries agreed on June 22-23 to return to 100 per cent compliance with oil output cuts that began in January 2017, after months of underproduction by Venezuela and others pushed adherence above 160 per cent.
The strong pace of oil demand that helped OPEC balance the market is expected to wane next year. OPEC expects world oil demand to grow by 1.45 million bpd., down from 1.65 million bpd. in 2018, and said any upside could be accommodated.
“If the world economy performs better than expected, leading to higher growth in crude oil demand, OPEC will continue to have sufficient supply to support oil market stability,” OPEC said.
Oil prices maintained an earlier decline on Wednesday after the release of the OPEC report, trading around $77 a barrel.
In June, OPEC oil output rose by 173,000 bpd. to 32.33 million bpd. largely due to higher Saudi production, the report said, citing figures OPEC collects from secondary sources.
This means compliance with the original supply-cutting deal has slipped to 130 per cent, according to a Reuters calculation, meaning members are still cutting more than promised.
OPEC’s June output is 150,000 bpd. more than OPEC expects the demand for its oil to average next year, suggesting a small surplus in the market should OPEC keep pumping the same amount and other things remain equal.
Still, a drop in Iranian exports could easily push the balance back to deficit. Iranian news agency Mehr, citing figures from the state oil company, said oil exports would drop by 500,000 bpd. with the restart of sanctions.
And the higher prices that have followed the OPEC-led deal have prompted growth in rival supply and a surge of U.S. shale. OPEC expects non-OPEC supply to expand by 2.1 million bpd. next year, far more than the expansion in world demand.
Next year’s supply growth will be led by the United States, with Brazil and Canada also contributing. But OPEC sees U.S. shale supply additions slowing in the second half of 2018 and into 2019 as bottlenecks persist.
“Some of the planned pipeline capacity increases have been delayed, and as a result, the takeaway capacity issue could remain a major constraint until next winter,” OPEC said.