OPEC has cut its forecast for growth in global oil demand due to trade disputes and pointed to the risk of a further reduction, building a case for prolonged supply restraint in the rest of 2019.
The producer group and its allies meet in the coming weeks to decide whether to maintain supply curbs. Some members are worried about a steep slide in prices, despite demands from US President Donald Trump for action to lower the cost of oil.
World oil demand will rise by 1.14 million barrels per day (bpd) this year, 70,000 bpd less than previously expected, the Organization of the Petroleum Exporting Countries said in a monthly report published on Thursday.
“Throughout the first half of this year, ongoing global trade tensions have escalated,” OPEC said in the report. “Significant downside risks from escalating trade disputes spilling over to global demand growth remain.”
OPEC, Russia and other producers have since January 1 implemented a deal to cut output by 1.2 million bpd. The alliance, known as OPEC+, is due to meet on June 25-26 or in early July to decide whether to extend the pact.
Despite the supply cut, oil has tumbled to $62 a barrel from April’s 2019 peak above $75, pressured by concern over the US-China trade dispute and an economic slowdown, though prices jumped 4% on Thursday after suspected attacks on two oil tankers in the Gulf of Oman.
In addition to lowering its demand forecast, OPEC said oil inventories in developed economies rose in April, suggesting a trend that could raise concern over a possible oil glut.
Stocks in April exceeded the five-year average - a yardstick OPEC watches closely - by 7.6 million barrels.
Still, the report implies that OPEC will under-supply the market in 2019, even with the weaker demand outlook.
OPEC’s share of the agreed oil supply reduction is 800,000 bpd, but the report showed producers were cutting much more.
Vienna-based OPEC said its output fell in May as US sanctions on Iran boosted the impact of the supply pact. Production by all 14 OPEC members dropped by 236,000 bpd from April to 29.88 million bpd.
Supply from Iran posted the biggest decline, by 227,000 bpd, as Washington tightened the screw on Iranian exports.
Top exporter Saudi Arabia made a further voluntary cut, helping to offset increases in Iraq and Angola.
The 11 OPEC members required to cut output achieved 143% compliance in May with pledged curbs, Reuters calculated, compared with 150% initially reported in April.
OPEC estimates it needs to provide an average of 30.52 million bpd in 2019 to balance the market, a figure lowered by 60,000 bpd month-on-month due to the weaker outlook for global demand.
This suggests there will be a 2019 supply deficit of over 600,000 bpd if OPEC keeps pumping at May’s rate and other things remain equal. Last month’s report had indicated a smaller deficit.