OPEC+ faces ‘major challenge’ from competitors’ surging output: IEA

LONDON: The Organization of the Petroleum Exporting Countries and its allies face stiffening competition in 2020, the International Energy Agency said on Friday, adding urgency to the oil producer group’s policy meeting next month, Reuters reported.

“The OPEC+ countries face a major challenge in 2020 as demand for their crude is expected to fall sharply,” the Paris-based agency said in a monthly report.

The IEA estimated non-OPEC supply growth would surge to 2.3 million barrels per day (bpd) next year compared to 1.8 million bpd in 2019, citing production from the United States, Brazil, Norway and Guyana.

“The hefty supply cushion that is likely to build up during the first half of next year will offer cold comfort to OPEC+ ministers gathering in Vienna at the start of next month,” it added.

While U.S. supply rose by 145,000 bpd in October, the IEA said, a slowdown in activity that started earlier this year looks set to continue as companies prioritize capital discipline.

Demand for crude oil from OPEC in 2020 will be 28.9 million bpd, the IEA forecast, 1 million bpd below the exporter club’s current production.

The recovery by OPEC’s de facto leader Saudi Arabia from attacks on the country’s oil infrastructure contributed 1.4 million bpd to the global oil supply increase in October of 1.5 million bpd.

“With plans underway for the Aramco IPO and the persistent need for revenues to fund the government budget, Riyadh has every incentive to keep oil prices supported,” the IEA said.

Saudi state oil company Aramco, the world’s most profitable firm, starts a share sale on Nov. 17 in an initial public offering (IPO) that may raise between $20 billion and $40 billion.

It was the IEA’s last monthly report before the Dec. 5-6 talks among OPEC states and partners led by Russia on whether to maintain supply curbs aimed at buoying prices and balancing the market.

The agency kept its assessments for growth in global oil demand in 2019 and 2020 at 1 million bpd and 1.2 million bpd respectively, but said its outlook might slightly underestimate the impact of tariffs from the U.S.-China trade war.

The IEA said that if some or all tariffs were lifted in coming months, “world economic growth and oil demand growth would both rise significantly”, though the rebound may not be immediate.

Sluggish refinery activity in the first three quarters has caused crude oil demand to fall in 2019 for the first time since 2009, the IEA said, but refining is set to rebound sharply in the fourth quarter and in 2020.

Meanwhile, OPEC expects demand for its oil to fall in 2020 as rivals pumped more despite a smaller surplus of crude in the global market, building a case for the group to maintain supply curbs when it meets to discuss policy next month.

In its last monthly report before the Dec. 5-6 talks, OPEC said demand for its crude would average 29.58 million barrels per day (bpd) next year, 1.12 million bpd less than in 2019. That points to a 2020 surplus of about 70,000 bpd, which is less than indicated in previous reports.

“On a positive note, signs of improving trade relations between the U.S. and China, a potential agreement on Brexit after the UK’s general election, fiscal stimulus in Japan, and a stabilization of the downward

slope in major emerging economies could stabilize growth at the current forecast level,” OPEC said in the report.

A brighter outlook would lessen the case for the producers, known as OPEC+, to deepen their supply cuts. Barkindo said in October all

options, including deeper cuts, were open although in recent comments he has downplayed reducing output further.

Oil prices were steady after the report’s release, trading near $63 a barrel, below the level some OPEC officials say they favor.

OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. In July, the alliance, known as OPEC+, renewed the pact until March 2020.

The report said oil inventories in developed economies fell in September, a trend that could ease OPEC concern about a glut. But stocks still exceeded the five-year average, a measure OPEC watches closely, by 28 million barrels.

OPEC and its partners have been limiting supply since 2017, helping revive prices by clearing a glut that built up in 2014-2016 when producers pumped at will.

But higher prices have also boosted U.S. shale and other rival supplies. OPEC expects its market share to fall in the next few years before recovering.

OPEC in the report trimmed its 2020 forecast for growth in non-OPEC supply to 2.17 million bpd, 40,000 bpd less than the previous forecast. World oil demand was expected to rise by 1.08 million bpd or 1 percent, unchanged from last month.

A slowdown in non-OPEC supply would help OPEC’s effort to manage the market. But non-OPEC output is still expected to grow at almost twice the rate of world oil demand in 2020, presenting OPEC and its allies with a continuing challenge to balance the market.

OPEC’s October output jumped by 943,000 bpd to 29.65 million bpd, according to figures the group collects from secondary sources, as Saudi Arabia’s supply recovered from attacks in September.

The report suggested there would be a 2020 surplus of 70,000 bpd if OPEC kept pumping at October’s rate and other factors remained equal, less than the 340,000 bpd surplus implied in September’s report before the Saudi attacks.