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. Its 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.