During the past week, three important forecasts for the global oil market were released: the OPEC market report, the IEA market report and a report from the US EIA. All three forecasts point to decline in crude oil demand next year.
The Organisation of Petroleum Exporting Countries (OPEC), the world’s largest oil cartel says global demand will fall by at least 1.3 million barrels per day (bpd).
On its part, Paris-based, International Energy Agency (IEA) expects the return of an oversupplied oil market next year, despite the recent rollover of an OPEC-led pact designed to restrain any glut. It said supply had exceeded demand by 0.9 million bpd in the first six months of this year.
The United States Energy Information Administration (US EIA) on its part forecasts a glut for oil markets largely due to rising US oil production. It reported last month that U.S. crude oil output in April surpassed 12 million bpd. Through the use of fracking technology in shale formations, the U.S. has become the world’s largest crude producer.
As OPEC continues to hold off a glut in the oil market through a supply cap agreement that has lasted three years, recent difficulties in getting non-OPEC members to support the pact, may yet validate these dire forecasts.
OPEC pumped 29.83 million bpd in June, according to an average of the six secondary sources used by the organization to track member output, including S&P Global Platts.
OPEC, Russia and nine other allies last week agreed to extend their collective 1.2 million b/d supply cut agreement through the first quarter of 2020, but the data indicates they will have to cut further if they wish to keep the market balanced.
The challenge is that appetite for more cuts has begun to wane in Russia. Analysts say a stand-off between Saudi Arabia and Russia is OPEC’s biggest challenge at the moment. Dissenting voices against the deal from Russian companies including Roseneft and Lukoil is getting louder because the restriction on their production is ceding more market share to US shale producers.
In its report, OPEC said its supply curbs would “avoid a destabilizing build-up in oil inventories,” and that in extending the deal, OPEC and its partners were “reaffirming their continued commitment to promote and enhance oil market stability.” OPEC will struggle to sell this corporation in the face of the shale oil threat.
Relative calm in the Niger Delta has helped Nigeria ramp production above 1.7 million bpd. Among OPEC’s members who boosted production, Nigeria led the increases with 129,000 bpd in June over May, while the largest producer Saudi Arabia raised its crude oil production by 126,000 bpd to 9.813 million bpd.
In this same period oil market analysts report many unsold cargoes and ships searching for buyers for Nigeria crude. In the emerging oil market, the money will not go to the most prolific producers but countries that are smart about developing and maintaining market share. To meet its budget revenue target, this would need to be Nigeria’s topmost priority.