Global oil markets face a “somewhat bearish” outlook for the rest of the year amid slowing economic growth and the long-running trade war, even though supplies will be tighter than previously thought, Opec said.
The Organisation of Petroleum Exporting Countries, which pumps about a third of the world’s oil, increased estimates for world demand this year and next, and lowered forecasts for production from its rivals. Nonetheless, its monthly report — which doesn’t typically give a view on prices — warned that the market may weaken.
That increases pressure on Saudi Arabia, the group’s de facto leader, which has shouldered most of the burden in production cuts aimed at bolstering oil prices amid faltering demand and a relentless flood of new shale supplies from the US.
Crude prices have fluctuated this week, following twists and turns in the clash between Washington and Beijing as President Donald Trump imposed steeper tariffs on Chinese goods and then touted further negotiations to resolve the impasse. At just under $60 a barrel in London, crude is below the levels most Opec nations need to cover government spending.
A coalition of oil producers composed of Opec members and allies such as Russia has curtailed supply this year to try and keep global markets in balance. Riyadh has reduced output by far more than it initially promised, reporting to the Opec secretariat that it cut production again in July to 9.58 million barrels a day.
The report released by Opec’s Vienna-based research department on Friday indicated that — in theory — the group’s efforts should be sufficient to prevent any surplus this year.
The global balance of supply and demand is tighter than it appeared a month ago. Opec raised its assessment of consumption for this year and next by 50,000 barrels a day, and trimmed projections for non-Opec supplies by 40,000 barrels a day for 2019 and by 90,000 a day for 2020.
As a result, even though oil inventories in developed nations have risen above average levels, global stockpiles should decline this quarter by an average of 2.1 million barrels a day. Opec is pumping about 29.6 million a day, compared with a daily requirement of 30.28 million.
Nevertheless, the focus in crude futures markets remains squarely on the outlook for demand, which is being soured by the growing risk of recession and the protracted dispute between the US and China.
A Saudi official speaking anonymously said last week that the kingdom had sounded out its partners on potentially stepping up their efforts and is open to all options. The Saudis, Russia and other key members of the coalition will meet to review their strategy in Abu Dhabi on Sept. 12.
“The outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil-demand growth,” Opec said in the report. “It remains critical to closely monitor the supply-demand balance and assist market stability in the months ahead.”