Although Brent crude dropped below $63 per barrel by the week closing, oil prices are still very close to the levels that prevailed around OPEC’s meeting six months ago when an output cut rollover was suggested till March 2020.
OPEC will meet next week on Dec. 5-6 and so far the efforts of the OPEC+ group of producers have been successful in absorbing the market surplus.
At the end of 2016 OECD stocks were 299 million barrels above the latest five-year average, which was OPEC’s key measure for its oil output strategy for those three years.
OECD commercial oil stocks for March 2018 were 40 million barrels below the latest five-year average, which meant that the OPEC+ output cuts of 1.8 million barrels per day (bpd) since January 2017 were successful in driving OECD commercial oil stocks below the five-year average within just 15 months of the new production cut strategy.
The continuing efforts in the past three years have ensured that the market is in balance and preventing any surplus building up.
By January this year OECD commercial oil stocks were at 19 million barrels above the latest five-year average — which coincided with the latest OPEC+ output cuts of 1.2 million bpd.
According to the OPEC monthly oil market report of November 2019, OECD commercial oil stocks stand at 28.2 million barrels above the latest five-year average. This means that OECD commercial crude stocks have been increasing regardless of OPEC+ output cuts. However, OPEC monthly reports forecast a sharp fall in calls on its crude in the first half of next year, while non-OPEC supply is set to increase ahead of weak global demand growth.
OPEC’s own forecast for global oil demand growth remains unchanged in 2020 at 1.08 million bpd, but demand is projected to be flat in the first and second quarter, when non-OPEC supply is set to rise by 1.79 million bpd.
However, there are many non-OPEC supply uncertainties in 2020.
According to OPEC’s own outlook, a rollover remains the most likely outcome of the 177th meeting.
• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq