The Organisation of Petroleum Exporting Countries (OPEC), the fourteen member cartel that controls the bulk of oil supply cut forecast for global oil demand growth by 40,000 barrels per day (bpd) to 1.10 million bpd an indication that the market will be bearish going into 2020.
OPEC in its latest oil market report says slowing economies in the face of US-China trade dispute and Brexit could push OPEC and its allies including Russia to extend supply cuts so as to shore up prices.
“While the outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil demand growth, it remains critical to closely monitor the supply/demand balance and assist market stability in the months ahead,” OPEC said in the report.
Reuters report that It is rare for OPEC to give a bearish forward view on the market outlook and oil pared an earlier gain after it was released to trade below $59 a barrel.
Despite the OPEC-led cut, oil has tumbled from April’s 2019 peak above $75 pressured by trade concerns and an economic slowdown.
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+, in July renewed the pact until March 2020 to avoid a build-up of inventories that could hit prices.
OPEC left its forecast for 2020 oil demand growth at 1.14 million bpd, up slightly from this year. But OPEC added that its forecast for 2020 economic Regrowth faced downside risk.
“The risk to global economic growth remains skewed to the downside,” the report said. “Especially trade-related developments will need to be thoroughly reviewed in the coming weeks with some likelihood of a further downward revision in September.”
OPEC trimmed its global economic growth forecast to 3.1% from 3.2% and, for now, kept its 2020 forecast at 3.2%.
The report also said oil inventories in developed economies rose in June, suggesting a trend that could raise OPEC concern over a possible oil glut.
Stocks in June exceeded the five-year average – a yardstick OPEC watches closely – by 67 million barrels.
This is despite the supply cuts of OPEC+ and additional involuntary losses in Iran and Venezuela, two OPEC members which are under U.S. sanctions.
OPEC deepened its cuts in July, the report showed. According to figures OPEC collects from secondary sources, output from all 14 members fell by 246,000 bpd from June to 29.61 million bpd as Saudi Arabia cut supply further.
OPEC and its partners have been limiting supply since 2017, helping to clear a supply glut that built up in 2014-2016 when producers pumped at will, and revive prices.
The policy has been giving a sustained boost to U.S. shale and other rival supply, and the report suggests the world will need significantly less OPEC crude next year.
