(Bloomberg) -- OPEC presented a bleaker assessment of global oil markets for the second quarter as the coronavirus crisis continues to drain demand, days after some of the cartel’s biggest producers pledged to make even deeper production cutbacks.
The Organization of Petroleum Exporting Countries cut estimates for the amount of crude it will need to supply over the three-month period by just under 3 million barrels a day, or about 15%, in a report published on Wednesday.
Lockdowns aimed at containing the spread of the coronavirus are reducing demand for aviation and driving fuels, particularly in the U.S., Europe and India, the organization said.
The darker outlook comes after three of OPEC’s key Persian Gulf exporters -- Saudi Arabia, the United Arab Emirates and Kuwait -- said that next month they will deepen the supply curbs already agreed with fellow members and their allies. The Saudis aim to slash a further 1 million barrels a day in June, bringing their output to the lowest since 2002.
Nonetheless, Saudi Arabia and key non-OPEC partner Russia said in a joint statement Wednesday they see growth in oil demand and other improving market indicators as several countries emerge from stringent lockdowns.
“Additional reductions recently announced by several OPEC members, above and beyond their voluntary commitments” should “expedite market re-balancing,” OPEC’s Vienna-based secretariat said in the report.
While oil prices have recovered in recent weeks, they remain about 40% below levels seen before the pandemic spread in early March, trading near $30 a barrel in London.
The price crash is taking its toll on OPEC’s rivals. The organization reduced estimates for non-OPEC supply in the second quarter by 2.4 million barrels a day, with much of the pullback being suffered by U.S. shale drillers.
But the downgrade in OPEC’s global oil demand projection for the period is more than twice as large, at 5.4 million barrels a day.
OPEC and its allies, a 23-nation partnership that includes non-members such as Russia and Kazakhstan, have promised to curb output by 9.7 million barrels a day this month and next.
Yet the report shows that, even if they fully implement the agreement, a significant surplus will remain this quarter.
OPEC sees the demand for its crude at just 16.77 million barrels a day in the period, roughly 6.5 million a day less than what its members would be pumping with full compliance.
Given the vast increases several members made last month, when they were competing over their share of the world market, delivering maximum compliance will require considerable effort.
Having produced an average of 30.41 million barrels a day in April, output from OPEC’s 13 members would need to drop by about 7 million a day this month to conform with their new targets.
The report did present a brighter outlook for the organization in the second half than last month’s. It boosted projected demand for its crude by about 1.1 million barrels a day, with low prices exerting further pressure on U.S. shale drillers and other competitors.
The agreement allows OPEC and its partners to ease some of the agreed cutbacks from July, though the coalition is due to meet on June 9 and 10 to consider their strategy for the rest of the year.
©2020 Bloomberg L.P.