Wood Mackenzie expects that OPEC+ will continue production restraint through the second half of 2019, rolling over the current agreement
As OPEC and OPEC+ meet in Vienna, the outlook for the market is mixed, Ann-Louise Hittle, vice-president, Macro Oils, at Wood Mackenzie said.
“Geopolitical risk means the supply outlook is tightening, offsetting the moderate weakening in oil demand growth thus far this year,” she said.
“We expect demand to increase one million bpd in 2019, with a pick-up in the second half of the year after the weak growth in the first half. However, this is at risk if the US increases tariffs on its imports from China or other nations and global GDP weakens further,” she added.
However, worsening tensions between US and Iran adds the potential for oil price volatility that could be tricky for OPEC members to manage.
“There is a downside risk for oil demand through the rest of the year if the ongoing trade war intensifies,” she noted
“OPEC compliance is strong, except for Iraq and Nigeria. In May this year, Saudi Arabia had cut its production by more than 0.8mn bpd from its October 2018 reference level. This is far more than required,” she remarked.
She stated that adherence to quotas is strong from UAE and Kuwait, as well as Algeria and Congo. But Libya, which is exempt from production restraint, saw a recovery in its output in May to around 1.1mn bpd.
“The market also faces the uncertainty of the escalation of threats between the US and Iran. That would pose a supply risk in a 100mn bpd global market, with just 3.8mn bpd of spare productive capacity from OPEC. Only 1.8mn bpd of that spare capacity could be made available within a month.
“At present, OPEC has the capacity to boost output by about 3.8mn bpd within nine months. Almost all of the 1.8mn bpd that could be brought to market within a month is held by Saudi Arabia, Kuwait and the UAE. If a significant outage occurs, the ability of the global industry to meet oil demand will be at risk,” she concluded.
