The Organisation of Petroleum Exporting Countries, OPEC, at its meeting yesterday weighed the prospects of facing an over-supplied crude oil market in 2019, along with a slow-down in oil demand, Suhail Mohammed Al Mazrouei Minister of Energy and Industry at UAE and President of the OPEC conference said in Vienna.
Mazrouei added that the recent developments in oil and gas market require a change in strategy decided earlier in June 2018.
“As we look forward to 2019, we see a new set of challenges. This includes the general consensus that prospects point to higher supply growth than expected global requirement and there are signs of a potential slowdown in demand,” Mazrouei said as part of his opening address to the 175th meeting of the OPEC conference.
Saudi Arabia has indicated it wants OPEC and its allies to curb output by at least 1.3 million barrels per day, or 1.3 percent of global production, news agency Reuters reported from Vienna.
“Today, it is vital that we thoroughly examine the potential gap between supply and demand in 2019, and how this might impact inventory levels and the extremely hard won market balance we have achieved over the past two years,” Mazrouei said.
OPEC, along with its non-OPEC allies led by Russia, earlier this year decided on increasing their respective production levels, in a bid to cap crude oil prices and bring balance to the market. OPEC decided to maintain 100 per cent conformity on the cuts announced in 2016 as compared to 152 per cent observed in May.
The cartel along with Russia had subsequently increased production, with Saudi Arabia and Russia reporting record production levels.
According to information published in OPEC’s monthly oil report, Saudi Arabia’s crude oil production in the third quarter ended September 2018 increased to 10,422 thousand barrels per day (tb/d), from 9,992 tb/d recorded in the corresponding quarter a year ago.
Similarly, Russia’s crude oil production increased to 11.44 million barrels per day (mbd) during the third quarter ended September as compared to 10.95 mbd recorded in the corresponding quarter a year ago.
Ann-Louise Hittle, vice president, macro oils, at consultancy Wood Mackenzie said: “We expect the group to agree to a production cut lasting until at least the first half of 2019. A number of factors make a six-month cut likely. Firstly, it would allow OPEC to assess the state of the market in June 2019. This is particularly important as the US President Donald Trump, who has called on the group to exercise price restraint, is watching the meeting closely.”
Hittle added that Wood Mackenzie’s short-term outlook projects key OPEC producers Saudi Arabia, United Arab Emirates and Kuwait – together with Russia and Oman, will push through a moderate reduction in output in place through 2019.
“We assume a cut of around 1.0 million barrels per day in the first quarter of next year, using October 2018 production levels as a reference. Given the recent ramp-up in supply from these producers, this represents a year-on-year decline in crude output of just 0.2 million barrels per day for 2019,” Hittle said.
OPEC’s de facto leader Saudi Arabia has indicated a need for steep output reductions from January, fearing a glut, but Russia has resisted a large cut, news agency Reuters reported from Vienna. The report quoting Oman’s Oil Minister Mohammed bin Hamad Al-Rumhy said that the actual volumes were still being discussed and the cuts would take September or October 2018 as baseline figures and last from January to June.
OPEC together with a group of non-OPEC producers led by Russia started withholding oil supplies up to 1.8 Million barrels per day since 2017 to prop up prices and reduce oil inventories.
The cuts, which deepened to 2.8 million barrels per day for the month of May, coupled with economic sanctions on Iran and Venezuela lifted prices from lows of around $42.20 per barrel in November 2016 to highs of around $80 dollar per barrel in May 2018.
OPEC members met on Thursday in Vienna and will hold talks with allies such as Russia on Friday.