LONDON (ICIS)--OPEC has cut expected crude demand for its member states this year amid a modest uptick in non-OPEC supply growth forecasts.
The cartel expects demand for crude for its members to stand at 23.6m bbl/day this year, a reduction of 700,000 bbl/day from forecasts last month, despite leaving overall global demand projections unchanged at minus-9.1m bbl/day.
Non-OPEC liquids production is expected to increase by 300,000 bbl/day compared to cartel forecasts last month, driven by Norway, Brazil, Guyana, and Australia.
Global oil production is still expected to fall substantially in the second half of the year as demand collapse and weak economies drive down output beyond the OPEC+ production cuts, the cartel said.
Non-OPEC supply is expected to fall 6.1m bbl/day year on year in the second half of 2020 compared to 1.8m bbl/day in the first, on the back of production curtailments by players such as Russia that have signed on to the cartel’s output cut agreements, as well by declines elsewhere, particularly North America, according to OPEC.
Weak oil pricing and a producer focus on capital discipline are likely to drive sharp declines in the US shale sector and Canada’s Alberta oil sands mean that the region is likely to lead the production falls forecast for the second half of the year, with combined falls of 2.8m bbl/day.
Non-OPEC industry capital expenditure is expected to fall 30% this year compared to 2019, representing a drop of $138bn to stand at $321bn.
OPEC production fell 6.3m bbl/day month on month in May, according to secondary sources, as the latest round of production cuts came into effect, a dramatic fall but substantially below the stated target of a 9.7m bbl/day cut, in addition to an additional voluntary cuts by Saudi Arabia and some other Middle Eastern partners.
The Kingdom accounted for almost half of the cuts, slashing output by 3.16m bbl/day, and all other members cutting output with the exception of Iran.
The partners to the accord agreed to extend the deepest cuts another month to July, but the window remains relatively narrow for producers to adjust production to the extent outlined in the deal.
The market has reacted positively to the introduction of the cuts at the start of May and to plans to extend the period the deepest cuts would be in place, but the road to recovery from the lows of April-May is expected to be a long one, according to OPEC.
“Increasing global crude oil prices in futures markets since the beginning of May reflect the perception of an earlier-than-expected recovery in oil demand amid a reduction in supply due to global production shut-ins,” OPEC said in its monthly oil report.
“Nevertheless, it remains to be seen whether US upstream investment can recover in the short term from the current deep cuts due to the COVID-19 pandemic and subsequent drop in oil prices,” the group added.
Focus article by Tom Brown