When OPEC and its allies meet in December to discuss their pact, they may have no other choice but to deepen the production cuts and possibly extend them beyond the current expiry date in March 2020.
Judging from last week’s monthly reports from the EIA, OPEC, and the International Energy Agency (IEA), the global oil demand growth picture has further dimmed, with all three organizations cutting their demand growth forecasts for this year.
With the expected recovery of Saudi oil production after the September 14 attacks on its oil infrastructure, oil stockpiles around the world are expected to add in the first half next year between 136 million barrels, as per OPEC figures, and 255 million barrels, as per the IEA, according to estimates from Bloomberg News’ Julian Lee.
So when they sit down at the summit in December, OPEC and its Russia-led non-OPEC partners may have to seriously consider deepening the cuts, barring another major supply disruption or unexpected optimism about oil demand growth in case trade disputes are resolved and economies pick up pace.
Last week, the EIA revised down its oil price forecast by $5 a barrel, due to the expected increase in global oil inventories in early 2020. In its Short-Term Energy Outlook (STEO) for October, EIA acknowledged there is a higher level of oil supply disruption risk than previously assumed, due to the attacks on Saudi oil infrastructure. Yet, EIA says, those risks are more than offset by “increasing uncertainty about economic and oil demand growth in the coming quarters, resulting in a lowered oil price forecast.” Related: Is The U.S. Gas Boom Already Over?
Then OPEC revised down its global oil demand growth estimate for this year, for a fourth time in five months, expecting demand to grow by just below 1 million bpd amid slowing economic growth momentum in the ongoing trade spats. In its closely-watched Monthly Oil Market Report, OPEC cut its world oil demand growth for 2019 by 40,000 bpd to 980,000 bpd, while leaving its 2020 demand growth estimate unchanged from last month at 1.08 million bpd.
The IEA on Friday cut again its demand growth forecast, to just 1 million bpd, on the back of faltering economies.
OPEC and Russia haven’t given yet early indications regarding the partners’ thinking about the December meeting. Russia’s Energy Minister Alexander Novak said last week that OPEC and its allies are currently not discussing changing the terms of their agreement, while OPEC Secretary-General Mohammad Barkindo is not ruling out the possibility of a deeper cut. All options are on the table, including a deeper cut from OPEC and its allies in December, Barkindo said last week.
By Tsvetana Paraskova for Oilprice.com
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