OPEC chief says oil market may have upside potential in 2020

OPEC’s production of crude oil and other liquids is expected to decline to 32.8 million barrels per day by 2024. (AFP)
Updated 06 November 2019

OPEC chief says oil market may have upside potential in 2020

  • Mohammed Barkindo appears to downplay the need to cut output more deeply

VIENNA: The oil market outlook for next year may have upside potential, the secretary-general of producer group OPEC said on Tuesday, appearing to downplay any need to cut output more deeply.

The Organization of the Petroleum Exporting Countries and its allies led by Russia will meet in December. The so-called OPEC+ alliance, seeking to boost oil prices, has since January implemented a deal to cut output by 1.2 million barrels per day until March 2020.

OPEC’s Mohammed Barkindo said he was more optimistic about the market outlook for next year than he had been in October, when he had said all options were open including a deeper cut to oil output amid forecasts of oversupply.

“Based on the preliminary numbers, 2020 looks like it will have upside potential,” he told a briefing on Tuesday. “There are definitely brighter spots. The numbers are looking more refined and the picture is looking brighter.”

“The other nonfundamental factors like trade issues that have been impacting negatively on the global economy, the news coming out is more optimistic. We have seen the biggest economy in the world, the US, continuing to defy projections, racing ahead.”

OPEC’s figures suggest there will be excess supply next year due to rising production outside the group. This prospect and issues such as the US-China trade dispute have weighed on oil prices, which at around $62.70 a barrel are down from a 2019 high above $75.

On whether the market looked oversupplied for next year, Barkindo said: “We are not there yet. We will not be able to at this point preempt all the steps that we are working through.”

Those steps, he said, include upcoming meetings of OPEC technical committees, such as its Economic Commission Board, and the next OPEC monthly oil market report, which looks at global demand and supply, due on Nov. 14.

Earlier, Barkindo also said Brazil would be welcome to join the 14-country oil producer group but had not yet made an official request to do so.

“They would be most welcome to join,” he told reporters, adding that consultations had taken place in Riyadh.

Brazilian President Jair Bolsonaro said last month that he wants his country to join OPEC, a move that would add the most significant new producer to the oil cartel for years but met with skepticism in Brazil’s energy industry.

OPEC on Tuesday released its 2019 World Oil Outlook, in which the producer group said it would supply a diminishing amount of oil in the next 5 years as output of US shale and other rival sources expanded. 


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.