OPEC says trade disputes, geopolitics, rising non-OPEC supply make for challenging 2H19


OPEC on Thursday said it faces a challenging second half of 2019, with demand-dampening trade disputes combining with expected robust non-OPEC supply growth to complicate the producer bloc's oil market rebalancing efforts.

ts 1.2 million b/d supply cut agreement with Russia and nine other non-OPEC allies expires at the end of the month, and in its closely watched monthly market analysis, OPEC said it must weigh a potential slowdown in global economic activity against geopolitical supply risks.

"The upcoming OPEC and non-OPEC ministerial meetings will carefully consider these developments, in order to ensure continued market stability," OPEC said in the report.

Saudi Arabia, OPEC's largest member, has advocated for a rollover of the cut agreement, saying oil inventories are still bloated, while Russia has said the coalition should consider more flexible quotas, given the expected impact of US sanctions on Iranian and Venezuelan crude supplies.

A proposal for a deeper cut has been floated, as well, with oil prices having slumped almost 20% in the last eight weeks.

The OPEC/non-OPEC coalition has yet to even agree on a date for its meeting to decide on the deal's future, with some countries favoring June 25-26 and others July 3-4.

In its report, OPEC's analysts suggested that the organization's 14 members could raise their production modestly and still keep the market in balance.

Though it revised downward its forecast of 2019 demand growth, OPEC's "record-high conformity levels" with its quotas have pushed the bloc's production below the expected level of demand for its crude, the report showed.

OPEC pumped 29.88 million b/d in April, according to an average of the secondary sources used to monitor output.

But the call on OPEC crude will average 30.52 million b/d for the year, including a robust 31.21 million b/d in the third quarter, the report said.

Even so, OPEC said it would tread cautiously. The organization forecast that 2019 oil consumption will rise 1.14 million b/d year-on-year, a downward revision of 70,000 b/d from last month's report, as "significant downside risks from escalating trade disputes spilling over to global demand growth remain."

Non-OPEC supply, meanwhile, will grow at almost double that pace, at 2.14 million b/d, unchanged from the previous forecast, led by US shale, as well as production ramp-ups in Brazil and the potential start-up of Norway's Johan Sverdrup field.

OECD oil inventories rose 25 million barrels in April, according to the report, and are 7.6 million barrels above the five-year average that OPEC has said it is targeting with its production cuts. Crude stocks, however, are 200,000 barrels below the five-year average, while product stocks are 7.9 million barrels above.


Saudi Arabia continued to maintain strong production discipline, pumping 9.69 million b/d in May, according to secondary sources. That is 620,000 b/d below its quota of 10.31 million b/d under the deal.

Saudi energy minister Khalid al-Falih has repeatedly pledged to "do what is needed" to maintain oil market stability, including cutting further.

Sanctions-hit Iran produced 2.37 million b/d in May, a 227,000 b/d plunge from April. Sanctions waivers the US granted to eight countries allowing limited purchases of Iranian crude expired in early May and were not renewed.

Venezuela, also impacted by US sanctions, saw its production fall to 741,000 b/d, a 35,000 b/d drop from April and the lowest since a strike in late 2002 and early 2003 brought its oil industry to a near standstill.

Iraq, OPEC's second-largest producer, raised output by 94,000 b/d to 4.72 million b/d in May, the report showed. That far exceeds its quota of 4.51 million b/d under the OPEC/non-OPEC agreement.

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US oil supply keeping lid on prices despite global risks: IEA chief

Growth in US oil production has kept prices at "reasonable levels" despite the recent oil tanker attacks near the Strait of Hormuz and other supply risks around the world, International Energy Agency chief Fatih Birol said.

"There is substantial amount of oil coming from the United States, which puts a strong ceiling on oil prices," Birol said in an interview Friday on the sidelines of the G20 energy ministerial meetings in Karuizawa, Japan.

"Growth from the United States is a welcome addition to oil markets, especially looking at from an oil security point of view and looking at affordability for oil importers, including Japan, Korea and other Asian importers."

The IEA's June Oil Market Report forecast non-OPEC supply growth will rise to 2.3 million b/d in 2020, from 1.9 million b/d this year amid a surge in US shale and strong output from Brazil and Norway as new fields start up.

"According to our numbers, in five years' time, the United States will be the largest exporter in the world," Birol said.

"This is great news for consumers. Think about the fact we are seeing so many developments in the world: Venezuela, Iran, Libya, Nigeria and many [others]. Still, oil prices are staying at reasonable levels."


The alleged attack on two oil tankers near the Strait of Hormuz Thursday was a wake-up call to stakeholders in oil markets, Birol said.

"We are seriously concerned about the recent attacks, and we are monitoring the situation very closely in consultation with our member governments. We are ready to act if and when it is necessary."

The Front Altair and the Kokuka Courageous were carrying cargoes including naphtha. The incidents followed attacks on May 12 on four tankers near the bunkering port of Fujairah.

"Having lots of supply does not mean that oil security is not important, and this very important incident reminds all of us, all actors in the markets once again, how important an issue oil security is," Birol said.

The Strait of Hormuz was the most important oil choke point, especially for Asian energy importers, he said.

"Today about 18 million barrels of oil on a daily basis flows through this choke point coming from Saudi Arabia, emirates and other countries to China, Japan, India and other Asian customers."

"But at the same time it is a major route for LNG, liquefied natural gas. About 30% of LNG goes through this strait, coming again to Japan, South Korea, and other Asian countries."

Asked whether oil importers will need to seek alternative supplies away from regions so as not to have to transit the Strait of Hormuz, Birol said: "I think this will be a situation observed by oil importers, especially in this part of the world."

Birol said he did not expect a major shift in oil flows any time soon.

The tanker attacks and heightened supply risks came at a time of concerns about lower global oil demand growth.

Asked which was the biggest risk to the oil market, Birol said the IEA cut its oil demand growth forecast in its June report mainly because of a slowing in the global economy -- "not only the advanced economy, but [also] the emerging countries. Chinese economic growth prospects are much lower than previously thought".

The IEA cut its 2019 oil growth again to 1.2 million b/d, but it sees 2020 growth of 1.4 million b/d on petrochemical demand.

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