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 oil prices by supply cuts is giving to US shale and other rival supply.
Giving its first 2020 forecasts in a monthly report, the Organisation 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 1.34m bpd from this year.
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 top two oil consumers.
“The 2020 forecast assumes that no further downside risks materialise, particularly that trade-related issues do not escalate further,” Opec said.
“Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.”
Opec, Russia and other producers have since January 1 implemented a deal to cut output by 1.2m bpd. The alliance last week renewed the pact until March 2020 to avoid a build-up of inventories that could hit prices.
Opec also said 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 25m barrels.
Opec said its oil output in June fell by 68,000 bpd to 29.83m 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.
Saudi Arabia increased output by 126,000 bpd to 9.81m 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.
Opec and its partners have been limiting supply since 2017, helping to get rid of a supply glut that built up in 2014-2016 when producers pumped at will, and revive prices.
The rally has prompted growth in shale and other rival supplies. Opec expects non-Opec supply to expand by 2.44m bpd next year, far more than the expansion in world demand which Opec forecast at 1.14m bpd, the same as 2019.
The report added new projects in fellow non-Opec producers Brazil, Norway and Australia will also add to supply next year.
With 2020 demand for Opec crude expected to average 29.27m bpd, the 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.