OPEC sees small 2020 oil deficit even before latest supply cut

Saudi Arabia told OPEC that it had cut oil supply levels in November following a production boost in October that came after attacks on its facilities in September. (AFP)
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Updated 12 December 2019

OPEC sees small 2020 oil deficit even before latest supply cut

  • OPEC keeps its 2020 economic and oil demand growth forecasts steady and is more upbeat about the outlook

LONDON: OPEC on Wednesday pointed to a small deficit in the oil market next year due to restraint by Saudi Arabia even before the latest supply pact with other producers takes effect, suggesting a tighter market than previously thought.

In a monthly report, OPEC said demand for its crude will average 29.58 million barrels per day (bpd) next year. OPEC pumped less oil in November than the average 2020 requirement, having in previous months supplied more.

The report retreats further from OPEC’s initial projection of a 2020 supply glut as output from rival producers such as US shale has grown more slowly than expected. This will give a tailwind to efforts by OPEC and partners led by Russia to support the market next year.

OPEC kept its 2020 economic and oil demand growth forecasts steady and was more upbeat about the outlook.

“On the positive side, the global trade slowdown has likely bottomed out, and now the negative trend in industrial production seen in 2019 is expected to reverse in 2020,” the report said.

Oil prices were steady after the report’s release, trading near $64 a barrel, below the level some OPEC officials have said
they favor.

The Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, have since Jan. 1 implemented a deal to cut output by 1.2 million bpd to support the market. At meetings last week, OPEC+ agreed to a further cut of 500,000 bpd from Jan. 1 2020.

The report showed OPEC production falling even before the new deal takes effect.

In November, OPEC output fell by 193,000 bpd to 29.55 million bpd, according to figures the group collects from secondary sources, as Saudi Arabia cut supply.

Saudi Arabia told OPEC it made an even bigger cut in supply of over 400,000 bpd last month. The Kingdom had boosted production in October after attacks on its oil facilities in September briefly more than halved output.

The November production rate suggests there would be a 2020 deficit of 30,000 bpd if OPEC kept pumping the same amount and other factors remained equal, less than the 70,000 bpd surplus implied in November’s report and an excess of over 500,000 bpd seen in July. OPEC and its partners have been limiting supply since 2017, helping to revive prices by clearing a glut that built up in 2014 to 2016. But higher prices have also boosted US shale and other rival supplies.

In the report, OPEC said non-OPEC supply will grow by 2.17 million bpd in 2020, unchanged from the previous forecast but 270,000 less than initially thought in July as shale has not grown as quickly as first thought.

“In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in US tight oil,” OPEC said, using another term for shale.


Iraq pledges full compliance with OPEC+ oil cuts

Updated 56 min 47 sec ago

Iraq pledges full compliance with OPEC+ oil cuts

  • Prince Abdulaziz bin Salman Al-Saud, the Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, reaffirmed their commitment to the cuts
  • Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month

DUBAI: Iraq has pledged to meet in full its obligations under the OPEC+ oil production cuts that have been credited with rebalancing global crude markets after the mayhem of April’s “Black Monday” when prices crashed around the world.

In a telephone call between Prince Abdulaziz bin Salman Al-Saud, Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, the two men reaffirmed their commitment to the cuts, which have helped to pull the oil price back from historic lows.

Brent crude, the global benchmark, has more than doubled in the past three months.

Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month. Iraq has now committed itself to an ambitious program of compensation to make up for past overproduction.

Iraq will further reduce production by 400,000 barrels per day this month and next, Ismail said, bringing its total cut to 1.25 million barrels daily. That level of cuts could be adjusted when final estimates of compliance are assessed by the six “secondary sources” that monitor OPEC+ output.

“The two ministers stressed that efforts by OPEC+ countries toward meeting production cuts, and the extra cuts under the compensation regime, will enhance oil market stability, help accelerate the rebalancing of global oil markets, and send a constructive signal to the market,” a joint statement added.

Prince Abdulaziz thanked Ismail for his efforts to improve Iraq’s compliance with the agreement.

Iraq had been the biggest laggard in the move toward 100 percent compliance by the 23 members of the OPEC+ alliance.

Officials in Riyadh told Arab News that Iraqi compliance had reached about 90 percent, a high level by the country’s previous standards but still short of the new targets.

Saudi Arabia has been forcefully advocating full compliance with the targets in an effort to remove oil from the global market as demand is still badly affected by the economic fallout from the COVID-19 pandemic.

The oil market will be under the spotlight later this month when the joint ministerial monitoring committee of OPEC+ energy ministers convenes virtually in the most recent of the monthly meetings set up to oversee the state of the global industry.

Oil had another strong week on global markets, breaking through the $45 barrier for the first time since early March on signs that the glut in US oil stocks was easing, as well as reductions in the amount of “floating crude” stored in tankers on the world’s oceans.

The price spiked on news of the Beirut explosion, which some analysts believed could herald a deterioration in regional security and a threat to oil exports.

Brent crude was trading at $44.70 on international markets.