OPEC cuts 2020 oil forecast, urges effort to avert new glut

OPEC’s Secretary-General Mohammed Sanusi Barkindo. The group has cut its forecast for global oil demand in 2020, and has warned of a new glut on the horizon. (AFP)
Updated 12 September 2019
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OPEC cuts 2020 oil forecast, urges effort to avert new glut

  • Saudi Arabia pumps less than quota as OPEC+ producers seek to keep market in balance

LONDON: OPEC on Wednesday cut its forecast for growth in world oil demand in 2020 due to an economic slowdown, an outlook the producer group said highlighted the need for ongoing efforts to prevent a new glut of crude.

In a monthly report, the Organization of the Petroleum Exporting Countries said oil demand worldwide would expand by 1.08 million barrels per day (bpd), 60,000 bpd less than previously estimated.

The weaker outlook amid a US-China trade war and Brexit could press the case for OPEC to maintain or adjust their policy of cutting output.

The report lowered OPEC’s forecast for world economic growth in 2020 to 3.1 percent from 3.2 percent and said next year’s increase in oil demand would be outpaced by “strong growth” in supply from rival producers such as the US.

“This highlights the shared responsibility of all producing countries to support oil market stability to avoid unwanted volatility and a potential relapse into market imbalance,” the report said.

OPEC, Russia and other producers, in an alliance called OPEC+, have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. Despite the OPEC-led cut, oil has tumbled from April’s 2019 peak above $75, pressured by trade concerns and an economic slowdown.

The report said oil inventories in industrialized economies fell in July, a development that could ease OPEC concern over a possible glut.

Even so, stocks in July exceeded the five-year average by 36 million barrels.

OPEC and its partners have been limiting supply since 2017, helping to clear a glut that built up in 2014-2016 when producers pumped at will, and revive prices.

The policy has given a sustained boost to US shale and other rival supply, and the report suggests the world will need less OPEC crude next year.

Demand for OPEC crude will average 29.40 million bpd in 2020, OPEC said, down 1.2 million bpd from this year.

OPEC said its oil output in August rose, however, by 136,000 bpd to 29.74 million bpd according to figures the group collects from secondary sources. It was the first increase this year. Saudi Arabia, Iraq and Nigeria boosted supply.

Top exporter Saudi Arabia told OPEC that the Kingdom raised August output by just over 200,000 bpd to 9.789 million bpd. Saudi Arabia continues to pump far less than its quota of 10.311 bpd.

Thanks in part to Saudi restraint, producers are still over-complying with the supply-cutting deal. Losses in Iran and Venezuela, two OPEC members facing US sanctions, have widened the supply reduction. August’s increase, however, puts OPEC output further above the 2020 demand forecast.

The report suggests there will be a 2020 supply surplus of 340,000 bpd if OPEC keeps pumping at August’s rate and other things remain equal, more than the surplus forecast in last month’s report.


Oil prices surge after attacks hit Saudi output

Updated 16 September 2019
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Oil prices surge after attacks hit Saudi output

  • The Houthi attacks hit two Aramco sites and effectively shut down six percent of the global oil supply
  • President Donald Trump said Sunday the US was ‘locked and loaded’ to respond to the attacks

HONG KONG: Oil prices saw a record surge Monday after attacks on two Saudi facilities slashed output in the world’s top producer by half, fueling fresh geopolitical fears as Donald Trump blamed Iran and raised the possibility of a military strike on the country.
Brent futures surged $12 in the first few minutes of business — the most in dollar terms since they were launched in 1988 and representing a jump of nearly 20 percent — while WTI jumped more than $8, or 15 percent.
Both contracts pared the gains but were both still more than 10 percent up.
The attack by Tehran-backed Houthi militia in neighboring Yemen, where a Saudi-led coalition is bogged down in a five-year war, hit two sites owned by state-run giant Aramco and effectively shut down six percent of the global oil supply.
Trump said Sunday the US was “locked and loaded” to respond to the attack, while Secretary of State Mike Pompeo said: “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Tehran denies the accusations but the news revived fears of a conflict in the tinderbox Middle East after a series of attacks on oil tankers earlier this year that were also blamed on Iran.
“Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning,” said Jeffrey Halley, senior market analyst at OANDA.
Trump authorized the release of US supplies from its Strategic Petroleum Reserve, while Aramco said more than half of the five million barrels of production lost will be restored by tomorrow.
But the strikes raise concerns about the security of supplies from the world’s biggest producer.
Oil prices had dropped last week after news that Trump had fired his anti-Iran hawkish national security adviser John Bolton, which was seen as paving the way for an easing of tensions in the region.
“One thing we can say with confidence is that if part of the reason for last week’s fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton’s sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid,” said Ray Attrill at National Australia Bank.