The Organisation of Petroleum Exporting Countries will have to attain 100 per cent compliance with its new crude oil supply cut accord and count on continued production declines in Iran and Venezuela, if it wants to prevent a price-depressing build in oil inventories, its own analysis suggests.
OPEC and 10 allies led by Russia agreed on Friday to a six-month, 1.2 million barrels per day production cut from October production levels, starting January 2019, with OPEC shouldering 800,000 bpd of that.
But full compliance from OPEC would still leave the bloc some 500,000 bpd above expected demand for its crude for the first quarter of 2019 and 400,000 bpd above the call for the second quarter, OPEC’s analysis arm said on Wednesday in its closely watched Monthly Oil Market Report.
The deal, however, exempted sanctions-hit Iran and economically distressed Venezuela, whose production is expected to decline significantly in the months ahead. That could help bring down the projected oversupply. Libya, whose production levels have been erratic due to internal instability, was also exempted from the cuts.
OPEC’s 15 members pumped 32.98 million bpd in October, according to an average of the six independent secondary sources used by the group to monitor output. The forecasted call on OPEC crude for Q1 2019 is 31.67 million bpd, rising to 31.77 million bpd in Q2, OPEC said in its report.
The figures all include Qatar, which has announced it is withdrawing from the organization from January. Qatar pumped 610,000 bpd in October. The OPEC/non-OPEC coalition has scheduled its next meeting for April to review market conditions and decide on next steps. The cuts “should contribute to sustainability of market stability,” OPEC said in the report.
OPEC’s analysts revised down their forecast of supply growth from outside the organisation to 2.16 million bpd in 2019 from 2.23 million bpd in last month’s report, largely due to the production cut agreement. Non-OPEC supply will average 62.19 million bpd in 2019, OPEC projected. Global demand, meanwhile, was kept unchanged at 100.08 million bpd for 2019, an expected growth of 1.29 million bpd from 2018’s level.