OPEC sees lower 2020 demand for its oil, points to surplus

OPEC and its allies last week renewed a supply-cutting pact until March 2020. (AFP)
Updated 12 July 2019

OPEC sees lower 2020 demand for its oil, points to surplus

  • The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices
  • OPEC and its allies last week renewed a supply-cutting pact until March 2020

LONDON: OPEC yesterday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an OPEC-led pact to restrain supplies.
The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices by supply cuts is giving to US shale and other rival sources. This potentially gives US President Donald Trump more room to keep up sanctions on OPEC members Iran and Venezuela.
Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year.
“US tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the US Gulf Coast export hub,” OPEC said, using another term for shale oil.
In the report OPEC also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the US and China.
“The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” OPEC said of the economic outlook. Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.”
OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. The alliance, known as OPEC+, last week renewed the pact until March 2020 to avoid a build-up of inventories that could hit prices.
Oil pared earlier gains after the report was released, although prices were still trading above $67 a barrel after three Iranian vessels tried to block a British ship in the Strait of Hormuz oil chokepoint.

HIGHLIGHTS

● Demand for OPEC crude to fall 1.34 million bpd in 2020.

● Cites trade disputes, Brexit as economy risks.

● Oil stocks increase, remaining above five-year average. Points to 2020 supply surplus at current OPEC production.

Despite the supply cut, oil has tumbled from April’s 2019 peak above $75, pressured by concerns over the US-China trade dispute and an economic slowdown.
OPEC also oil inventories in developed economies rose in May, suggesting a trend that could raise concern over a possible oil glut.
Stocks in May exceeded the five-year average — a yardstick OPEC watches closely — by 25 million barrels.
OPEC said its oil output in June fell by 68,000 bpd to 29.83 million bpd as US sanctions on Iran boosted the impact of the supply pact.
According to figures OPEC collects from secondary sources, supply from Iran posted the biggest decline, by 142,000 bpd, as Washington tightened the screws on Iranian exports.
Top exporter Saudi Arabia increased output by 126,000 bpd to 9.81 million bpd in June but continued to voluntarily pump less than the supply pact allows it to in order to bolster the market. Nigeria, seeking a higher OPEC quota, posted the group’s largest boost in output.
With 2020 demand for OPEC crude expected to average 29.27 million bpd, OPEC’s report suggests there will be a 2020 supply surplus of over 500,000 bpd if OPEC keeps pumping at June’s rate and other things remain equal.


Mexico objects to labor enforcement provision in North American trade deal

Updated 15 December 2019

Mexico objects to labor enforcement provision in North American trade deal

  • Mexico produced more stringent rules on labor rights aimed at reducing Mexico’s low-wage advantage
  • US House of Representatives proposes the designation of up to five US experts who would monitor compliance with local labor reform in Mexico

MEXICO CITY: Mexico’s deputy foreign minister, Jesus Seade, said on Saturday he sent a letter to the top US trade official expressing surprise and concern over a labor enforcement provision proposed by a US congressional committee in the new North American trade deal.
Top officials from Canada, Mexico and the United States on Tuesday signed a fresh overhaul of a quarter-century-old deal, aiming to improve enforcement of worker rights and hold down prices for biologic drugs by eliminating a patent provision.
How labor disputes are handled in the new United States-Mexico-Canada Agreement (USMCA) trade deal was one of the last sticking points in the negotiations between the three countries to overhaul the agreement.
Intense negotiations over the past week among US Democrats, the administration of Republican US President Donald Trump, and Mexico produced more stringent rules on labor rights aimed at reducing Mexico’s low-wage advantage.
However, an annex for the implementation of the treaty that was presented on Friday in the US House of Representatives proposes the designation of up to five US experts who would monitor compliance with local labor reform in Mexico.
“This provision, the result of political decisions by Congress and the Administration in the United States, was not, for obvious reasons, consulted with Mexico,” Seade wrote in the letter. “And, of course, we disagree.”
USMCA was signed more than a year ago to replace the North American Free Trade Agreement (NAFTA), but Democrats controlling the US House of Representatives insisted on major changes to labor and environmental enforcement before voting.
The letter, released on Saturday, is dated Friday and addressed to US Trade Representative Robert Lighthizer. Seade said he would travel to Washington on Sunday to raise the issues directly with Lighthizer and lawmakers.
“Unlike the rest of the provisions that are clearly within the internal scope of the United States, the provision referred to does have effects with respect to our country and therefore, should have been consulted,” Seade wrote.
Both Canada and the US House Ways and Means Committee said the deal included a mechanism for verification of compliance with union rights at the factory level in Mexico by independent labor experts.
Some Mexican business groups bemoaned a lack of clarity and conflicting information on how the rules would actually be enforced under the deal, the first text of which became public only on Wednesday.