OPEC sees lower 2020 demand for its oil, points to surplus

OPEC and its allies last week renewed a supply-cutting pact until March 2020. (AFP)
Updated 12 July 2019

OPEC sees lower 2020 demand for its oil, points to surplus

  • The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices
  • OPEC and its allies last week renewed a supply-cutting pact until March 2020

LONDON: OPEC yesterday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an OPEC-led pact to restrain supplies.
The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices by supply cuts is giving to US shale and other rival sources. This potentially gives US President Donald Trump more room to keep up sanctions on OPEC members Iran and Venezuela.
Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year.
“US tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the US Gulf Coast export hub,” OPEC said, using another term for shale oil.
In the report OPEC also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the US and China.
“The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” OPEC said of the economic outlook. Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.”
OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. The alliance, known as OPEC+, last week renewed the pact until March 2020 to avoid a build-up of inventories that could hit prices.
Oil pared earlier gains after the report was released, although prices were still trading above $67 a barrel after three Iranian vessels tried to block a British ship in the Strait of Hormuz oil chokepoint.

HIGHLIGHTS

● Demand for OPEC crude to fall 1.34 million bpd in 2020.

● Cites trade disputes, Brexit as economy risks.

● Oil stocks increase, remaining above five-year average. Points to 2020 supply surplus at current OPEC production.

Despite the supply cut, oil has tumbled from April’s 2019 peak above $75, pressured by concerns over the US-China trade dispute and an economic slowdown.
OPEC also oil inventories in developed economies rose in May, suggesting a trend that could raise concern over a possible oil glut.
Stocks in May exceeded the five-year average — a yardstick OPEC watches closely — by 25 million barrels.
OPEC said its oil output in June fell by 68,000 bpd to 29.83 million bpd as US sanctions on Iran boosted the impact of the supply pact.
According to figures OPEC collects from secondary sources, supply from Iran posted the biggest decline, by 142,000 bpd, as Washington tightened the screws on Iranian exports.
Top exporter Saudi Arabia increased output by 126,000 bpd to 9.81 million bpd in June but continued to voluntarily pump less than the supply pact allows it to in order to bolster the market. Nigeria, seeking a higher OPEC quota, posted the group’s largest boost in output.
With 2020 demand for OPEC crude expected to average 29.27 million bpd, OPEC’s report suggests there will be a 2020 supply surplus of over 500,000 bpd if OPEC keeps pumping at June’s rate and other things remain equal.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.