OPEC keeps 2020 world oil demand forecast unchanged
The global oil market is slowly starting to rebalance thanks to production cuts and relaxing coronavirus lockdowns. The industry is still swimming in excess supply, the Organization of the Petroleum Exporting Countries said Wednesday.
Report informs citing The Wall Street Journal, in its widely scrutinized monthly report, OPEC left unchanged its forecasts that the world’s demand for crude will fall by 9.1 million barrels a day in 2020 and plunge by 17.3 million barrels a day in the second quarter.
“Following an unprecedented and highly turbulent [first half of 2020] due to the enormous impact of Covid-19 on the global economy and oil market fundamentals, the dust is starting to settle,” the cartel said in its report.
The lifting of pandemic-motivated restrictions and monetary stimulus potentially amounting to a quarter of global GDP will allow global growth to rebound in the second half of the year, allowing the oil sector to recover with it, OPEC said.
OPEC’s monthly market report came the day before the meeting of its Joint Ministerial Monitoring Committee, which is set to meet monthly through the second half of the year in order to assess compliance with the historic production cuts the cartel and its allies agreed earlier this month to extend through July.
Oil prices swung between gains and losses Wednesday, with Brent crude futures down 1.3% at $40.45 a barrel. West Texas Intermediate futures fell 1.7% to $37.73 a barrel.
Both Brent and WTI have rallied more than 20% over the past month, with the discount on short-term purchases to longer-term ones having shrunk, “suggesting that the supply-demand fundamentals are gradually improving, ” OPEC said.
But a return to the fundamentals of the pre-COVID 19 oil market is still some way off, with air travel and manufacturing likely to remain subdued through the rest of 2020, limiting demand for oil products like jet fuel and diesel. The cartel echoed the International Energy Administration’s monthly report on Tuesday, highlighting a sharp decline in refining margins.
With refiners groaning under the weight of refined inventory, the world also has an enormous surplus of crude oil, with stocks in the developed world climbing 141 million barrels above the five-year average in April.
Still, the cartel cited lower supply from the OPEC plus group of producers, as well as a forecast 3.8 million-barrel-a-day decline from North American producers in the second half of the year as contributing to the forecast stabilization of markets.
There was evidence of the Vienna-based organization’s cuts in its May production figures, with Saudi Arabia and the United Arab Emirates slashing production by 3.5 million barrels and 1.6 million barrels, respectively.
Secondary sources cited by OPEC put those reductions at a more modest 3.2 million barrels a day and 1.4 million barrels a day, with those same sources estimating the May supply reduction from OPEC nations as being 6.3 million barrels a day.
Non-OPEC producers signed up to the OPEC plus deal reduced supply by 3 million barrels a day, while U.S. production declined by 600,000 barrels a day OPEC said.
“Thought to an oil price recovery and growing demand, U.S. crude oil production is projected to gradually recover in 4Q 2020 and begin growing into the next year,” the report added.