OPEC scales back 2016 oil forecast as emerging markets disappoint

Oil demand was stronger than it had forecast in the main consuming countries ‘mainly driven by lower oil prices’

Published: Updated:

The OPEC oil cartel on Monday trimmed its forecast for global oil demand next year as emerging markets, which have been the motor of world growth in recent years, splutter.

Cheap oil prices should be enough to keep oil demand growing slightly in volume terms next year, but also nearly halt the expansion of non-OPEC resources, the group said in its monthly report.

Better than expected growth in the United States and the eurozone prompted the Organization of the Petroleum Exporting Countries to nudge up its forecast for world oil demand growth this year to 1.46 million barrels per day (bpd) to 92.79 million bpd.

Oil demand was stronger than it had forecast in the main consuming countries “mainly driven by lower oil prices.”

However OPEC cut its 2016 forecast to a 1.29 million bpd gain to 94.08 million bpd “due to the projected slower economic momentum in Latin America and China.”

The slowdown in China, which has dampened the prospects for commodities producers and sparked volatility in markets in recent weeks, led OPEC to trim its forecast for global economic growth to 3.1 percent this year and 3.4 percent in 2016.

“While the group of emerging and developing economies has been the main growth engine in recent years, it has become clear that growth in this group is slowing down,” said OPEC.

Low oil prices were also beginning to have an impact on production, it said.

The global oil market has been driven for the past year and half by an increasingly transparent policy by OPEC kingpin Saudi Arabia to safeguard its market influence against upstart shale producers who could change global dynamics by cutting US dependence on imported oil.

The refusal of Saudi Arabia and its OPEC partners to cut production has seen crude oil prices slump from more than $100 per barrel in 2013 to less than $40 last month, putting the squeeze on high-cost US producers.

“U.S. oil production has shown signs of slowing,” said OPEC.

“This could contribute to a reduction in the imbalance of oil market fundamentals, however, it remains to be seen to what extent this can be achieved in the months to come,” it said.

However OPEC still sees a marginal increase of U.S. oil production to 13.97 mbpd next year from 13.75 mbpd, with output from shale producers also to nudge up if prices hold at current levels.

That contrasts with a forecast made last week by the International Energy Agency, which analyses energy markets for oil consuming nations, that non-OPEC oil output may drop by half a million barrels per day next year -- the biggest decline in 24 years -- with U.S. shale producers accounting for four-fifths of that drop.