OPEC expects pandemic to lower oil demand by 9.5M barrels per day
OPEC downgraded its outlook for the global oil market a few days before ministers meet, amid faltering demand and signs of a recovery in supply from U.S. shale drillers.
The figures raise questions about the group’s decision to ease production cuts last month. The Organization of Petroleum Exporting Countries added 760,000 barrels a day to global markets in August, just as its analysts were revising down demand for its crude by more than 1 million barrels a day.
OPEC and its allies will hold an online monitoring meeting on Thursday to assess whether the vast production curbs they’ve been making are still sufficient to stave off an oil glut as the resurgence of coronavirus batters the world economy.
Oil prices slipped further below US$40 a barrel in London on Monday, close to their lowest in more than two months, as companies from BP Plc to Trafigura Group made ominous predictions about consumption.
OPEC+, the 23-nation alliance spanning cartel nations like Saudi Arabia and non-members such as Russia, had agreed to taper some of the supply cutbacks made during the depths of the pandemic amid expectations that economic activity was recovering.
This month’s report from the organization’s secretariat in Vienna suggests the move might have been premature.
OPEC reduced forecasts for global oil demand for each quarter to the end of next year by an average of 768,000 barrels a day. As a result, consumption is on track to collapse by an unprecedented 9.46 million barrels a day in 2020, averaging 90.23 million a day.
The group simultaneously raised projections for production outside OPEC over the next five quarters by an average of 394,000 barrels a day, mostly because of a stronger outlook for the U.S.
The combination of the softer consumption forecasts and more robust non-OPEC supply numbers depresses the requirement for crude from the cartel. The organization revised down estimated demand for its crude next year by 1.1 million barrels a day to 28.2 million a day.
While OPEC is producing far below this level because of its agreement to curb supply, the revisions indicate that the world’s bloated oil inventories will subside more slowly than previously thought.
The group’s 13 members pumped an average of just over 24 million barrels a day in August, the report showed. To satisfy demand in the coming months, they would need to produce more than 28 million barrels a day, and the same for much of 2021, suggesting that inventories should still decline substantially.
The organization, which has shaped global oil markets from the Arab nations’ embargo of 1973 to the record supply cuts of this year’s pandemic, turned 60 on Monday.
The decades ahead could bring a further test.
U.K. energy giant BP said the relentless growth of oil demand is over, becoming the first supermajor to call the end of an era many thought would last another decade or more. Oil consumption may never return to levels seen before the coronavirus crisis took hold, the company said in a report on Monday.