Slowdown in global economic growth to weaken oil demand, says OPEC

Organization of the Petroleum Exporting Countries (OPEC), has warned that slowing global economic growth would weaken oil demand for 2019, providing support to calls by some of the bloc’s members to extend price-bolstering crude production cuts set to expire in June.

In its monthly oil market report for March released yesterday, OPEC revised downward its projection of this year’s global oil demand to below 100 million b/d for the first time since it started forecasting 2019 fundamentals last July.

The world is expected to consume 99.96 million b/d, up 1.24 million b/d from 2018, OPEC estimated.

Oil prices continue to hover at $67 per barrel as the Brent crude closed at $67.30 at 7pm and Nigeria’s Bonny light at $67.99 yesterday.

Increased production by Nigeria and Iraq above the agreed quota by members of the cartel in February, saw compliance level hitting 79 per cent last month, three per cent above January’s 76 per cent.

Meanwhile, the projection of supply from outside OPEC in 2019 was revised upwards from last month’s report to 64.43 million b/d, a rise of 2.24 million b/d from 2018, led by continued strength in US shale production.

With OPEC expected to produce 5.07 million b/d of NGLs, that leaves the so-called call on OPEC crude at 30.46 million b/d.

To balance the market, the bloc would have to cut its production further from the 30.55 million b/d that it pumped in February, according to the secondary sources that OPEC uses to monitor output.

“While oil demand is expected to grow at a moderate pace in 2019, it is still well below the strong growth expected in the non-OPEC supply forecast for this year,” OPEC said in the report. “This highlights the continued shared responsibility of all participating producing countries to avoid a relapse of the imbalance and continue to support oil market stability in 2019.”

Oil inventories as of January stood at 2.88 billion barrels, about 19.1 million barrels above the five-year average that OPEC is targeting, according to the report.

OPEC and 10 non-OPEC allies led by Russia agreed in December to a 1.2 million b/d production cut accord that is scheduled to run through June, but Saudi energy minister Khalid al-Falih has said his preference is to see the deal extended to maintain market stability.

A key OPEC/non-OPEC monitoring committee co-chaired by Falih and Russian counterpart Alexander Novak will meet Monday in Azerbaijan to assess compliance with the cuts and discuss market outlooks.

The full OPEC/non-OPEC coalition will meet April 17-18 in Vienna.

OPEC’s compliance with the supply accord appears to still be largely reliant on Saudi Arabia continuing to “lead by example” on production cuts. Sanctions-hit Iran and Venezuela, along with volatile Libya, are exempt from the deal.

In the report, Saudi Arabia said it produced 10.14 million b/d in February, its lowest level since May 2018 and well below its quota under the supply accord of 10.31 million b/d. OPEC’s secondary sources estimated 10.09 million b/d for Saudi Arabia’s February output.

Iraq, OPEC’s second largest producer, said it pumped 4.55 million b/d in the month, though secondary sources have its production higher at 4.63 million b/d, far above its quota of 4.51 million b/d.

Iran, which did not provide a self-reported figure, produced 2.74 million b/d in the month, secondary sources estimated. The country is under US sanctions, and waivers allowing eight countries to continue purchasing Iranian oil are set to expire in May. US officials have not indicated whether those waivers will be renewed.

Venezuela, also under US sanctions, said it produced 1.43 million b/d in February, down 60,000 b/d month on month. But secondary sources pegged Venezuelan output at 1.01 million b/d in February.