OPEC mulls deeper oil cuts over lingering demand concerns

The Organisation of the Petroleum Exporting Countries (OPEC), Russia, and their allies have not ruled out deeper oil output cuts when they next meet December 5-6 in Vienna, Austria, even as OPEC’s analysis arm revised upward its forecasts of demand for the group’s crude this year and next.

The current OPEC/non-OPEC supply accord commits the 24-country coalition to 1.2 million barrels per day (b/d) in production cuts through March.

Any decision made at the meeting would likely cover the entirety of 2020, OPEC Secretary-General, Mohammed Barkindo, said yesterday.

“All I can tell you at the moment, all options are open,” Barkindo said in a news conference on the sidelines of an industry forum in London. “Going towards December, when we reconvene, the (OPEC/non-OPEC coalition) we will take an appropriate strong positive decision that will set us on the path of heightened sustainability.”

He added: “Our commitment as a group of 24 countries to ensure we do not relapse into the last cycle is sacrosanct.”

OPEC, Russia and nine other non-OPEC allies are nearly three years into collective production cuts aimed at propping up the market, but oil prices are still far below where many countries require to balance their budgets.

Barkindo acknowledged that global economic concerns were clouding the oil demand picture, with Brexit negotiations continuing to confound and the US-China trade dispute casting “a long shadow going forward.”

But the U.S. remains “a very bright spot” for oil demand growth, he said, and he is optimistic that the U.S. and China will reach a trade deal and end their retaliatory tariffs.

“We have not heard any projection of a global recession,” Barkindo said. “Yes, the global economy is facing headwinds, largely because of the trade disputes. [But] we see the commitment of countries to overcome these challenges.”

But OPEC’s closely-watched monthly oil market report published Thursday painted a less-pessimistic outlook for the producer group than in last month’s report.

OPEC’s estimate of global demand for its crude this year was revised up by 100,000 b/d to 30.7 million b/d, which is 900,000 b/d lower than the 2018 level. With OPEC crude production averaging 29.3 million b/d during the third quarter, the producer group pumped about 2.5 million b/d lower than OPEC’s Q3 “call” on its crude.

For next year, OPEC revised up its estimate for the demand for OPEC crude by 200,000 b/d to 29.6 million b/d, around 1.2 million b/d lower than the 2019 level.

OPEC said it expects 2019 global oil demand growth of 980,000 b/d, about 40,000 b/d less than last month’s forecast, but left its 2020 forecast unchanged from last month’s projection at 1.08 million b/d.

OPEC, however, also cut its non-OPEC oil supply growth forecast for 2019 by 160,000 b/d from its previous report to 1.82 million b/d. The downward revision reflects lower production forecasts for the US as well as Norway, the UK, Mexico, Malaysia, and Ghana, OPEC said.

The producer group suffered a blow last week, with Ecuador announcing it was quitting the organisation at the end of the year, as it pursues higher oil revenues unbound by a production quota. The departure has raised questions about how steadfast the coalition remains in its resolve to rebalance the market through output cuts.

But Barkindo, who was in Moscow last week, said he had received assurances from President Vladimir Putin that Russia, which has not always complied with its production quota, is staying on board with the current supply pact. Putin is scheduled to visit Saudi Arabia next week, and the annual Russia-OPEC energy dialogue is set for next Friday in Vienna.

“Russia remains fully committed to the supply adjustments,” Barkindo said. “Russia is the bridge that binds OPEC and non-OPEC.”