Daily Management Review

OPEC expects overproduction on global oil market


The International Energy Agency (IEA) forecasts overproduction of oil in the world. “Our balance sheet shows potential overproduction next year from non-OPEC states, especially from the United States. In the first half of 2019, the supply of oil exceeded the demand by 900,000 barrels per day,” wrote experts from the IEA. They believe that next year the effectiveness of the OPEC and non-OPEC countries' deal on jointly reducing production (the so-called OPEC + transaction) will decrease.

Barta IV via flickr
Barta IV via flickr
The IEA predicts that production in OPEC countries in the first quarter of next year will drop to 28 million barrels per day, which is a minimum of 15 years. In June, OPEC production fell to 29.8 million barrels per day, the minimum since 2014. The decision to extend the OPEC + deal until the end of March 2020 improves market manageability, but does not change the fundamental forecast of its oversaturation, the IEA writes.

The main driver of oil production in the world is the USA. Over the past three years, the country has increased production by more than a third to 12.3 million barrels per day. But mining in the United States will be offset by growing demand, especially against the background of a temporary truce in the US-Chinese trade war. Demand is now being fueled by the US conflict with Iran and worsening situation in the Strait of Hormuz, through which ships from the Persian Gulf pass. Possibly, OPEC has enough flexibility to equalize supply and demand.

On July 2, the OPEC + deal participants agreed to fix the extraction of raw materials at 43.9 million barrels per day. The transaction involves 21 countries, including Russia and Saudi Arabia.

OPEC expects oil demand in 2019 to rise to 99.87 million barrels. Previously it was assumed that the demand for the current year will exceed the psychologically important mark of 100 million barrels per day. 

source: reuters.com