OPEC’s expectations highlight threat to oil demand

Latest report from Organization of Petroleum Exporting Countries (OPEC) reveals that several oil producers led by Saudi Arabia oil has increased oil production for the month of August, as the prospect of the loss of Iranian supply added to concerns over the delicate balance between consumption and production.

The 15-member OPEC said crude oil production rose month-on-month by 278,000 barrels a day in August which was driven by higher output in Libya, Iraq, Iran and Nigeria.

According to the report, OPEC produced 32.57 million bpd in August, which increased by 278,000 bpd from July as OPEC’s largest producer Saudi Arabia saw its output rise modestly to 10.40 million bpd, up 38,000 bpd from the previous month.

Oil analysts expect the increase in output by the Saudis over the past few months to dominate monitoring committee talks scheduled for September 23 in the Algerian capital.

A six-country Joint Ministerial Meeting Committee (JMMC) overseeing the OPEC/non-OPEC supply accord will meet September 23 in Algiers to assess market fundamentals and potentially make output policy recommendations.

Industry experts are expecting that the monitoring committee will be discussing the need to further increase output to cover potential shortages in the market as production from Iran and Venezuela continues to slump.

Second-largest producer, Iraq, boost output by 90,000 bpd to 4.65 million bpd, according to secondary sources, while direct communication showed production of 4.46 million bpd, unchanged from July.

The two nations remain sharply divided over the details of the agreement reached in June as the Saudis, supported by other Gulf nations and Russia said OPEC had agreed to add about 1 million barrels a day to world markets.

On the other hand, Iran, which is seeing its supply pressured by US sanctions, saw its production drop 150,000 bpd to 3.58 million bpd in August, secondary sources estimated while direct communications reported steady production of 3.81 million bpd.

Libya was the biggest gainer in the month, boosting production by 256,000 bpd to 926,000 bpd, while Nigeria also increased production by 74,000 bpd to record 1.7million in the month of August.

OPEC said the current state of the world economy and geopolitics will come increasingly into focus in the next few months, impacting the global oil markets.

“A combination of monetary tightening from G4 central banks, the weakening financial situations in some emerging and developing economies, rising trade tensions and ongoing geopolitical concerns in some parts of the world constitute challenges to the current global economic growth trend,” the Vienna-based organization said.

According to OPEC “the aforementioned monetary tightening by the US Fed has put pressure on emerging economies, especially those facing relatively large external short-term financing needs. This has translated into some significant currency depreciation in August, specifically in the case of Turkey and Argentina.”

It is a marked shift in tone from last month’s report, which noted that “healthy economic developments and increased industrial activity” would likely support demand for distillate fuels.

OPEC and allies led by Russia will meet in Algiers later this month to assess world markets, having agreed to boost production by 1 million bpd by reducing over compliance with cuts at their last meeting in June 23. Oil prices are trading near their highest in two months in London, at almost $80 a barrel, as demand concerns arising from US-China trade tensions are countered by supply losses from Iran to Venezuela.

In its latest report, OPEC revised down slightly its non-OPEC supply in 2018 saying it will average 59.56 million bpd.

“This was due to a “downward adjustment in the supply forecast for Brazil, the UK, India, Malaysia and China on lower-than-expected output” in the second half of this year,” OPEC said.

In 2019, Vienna-based organization expects an increase in non-OPEC oil supply to 61.71 million bpd, with the US, Brazil, Canada, UK, Kazakhstan, Australia, China and Malaysia being the main growth drivers.

Mexico and Norway are expected to see the largest declines but OPEC added that the 2019 forecast is subject to many uncertainties.

OECD commercial oil inventories stood at 2.830 billion barrels as of July, which was 43 million barrels below the five-year average but 194 million barrels lower than the July 2018 level.

DIPO OLADEHINDE