OPEC’s analysis arm on Tuesday offered a bearish 2018 outlook for the producer bloc, projecting that global demand for its crude would fall by 60,000 b/d from this year to average 32.2 million b/d.

  • OECD oil stocks 234 million barrels above 5-year average
  • Global demand to grow 1.26 million b/d in 2018
  • Non-OPEC supply to grow 1.14 million b/d in 2018
  • OPEC NGLs supply to grow 180,000 b/d in 2018

That is 400,000 b/d below its June output level of 32.6 million b/d, according to OPEC’s secondary sources, meaning that if OPEC holds output steady, the market’s supply glut would continue through next year.

Related article — Oil markets currently in balance, set to tighten in H2 2017: BP’s Dudley

In offering its first forecasts of 2018 market fundamentals, OPEC said its projections of non-OPEC oil supply and OPEC NGLs growth next year “will slightly outpace incremental world oil demand.”

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OPEC would therefore hope that “a better-than-expected improvement in the global economy could contribute further to oil demand growth in the coming year, accelerating the ongoing rebalancing in the oil market and supporting market momentum in 2018,” its analysts wrote in their monthly oil market report.

OPEC forecast a significant market tightening in the months ahead, with demand for OPEC’s crude expected to average 33.34 million b/d in the third quarter, significantly above the second-quarter call of 31.55 million b/d, as non-OPEC supply will not be as robust as previously forecast.

But supplies start to grow again in 2018, the analysts projected.

Non-OPEC supply will average 58.96 million b/d in 2018, a 1.14 million b/d rise from the estimate for 2017 of 57.82 million b/d, which was revised downward by 300,000 b/d from last month’s report.

OPEC NGLs production, which was expected to average 6.31 million b/d in 2017, will rise to 6.49 million b/d, largely due to the addition of Equatorial Guinea to OPEC, the report stated. The country was voted in as a full member during OPEC’s May 25 meeting.

Meanwhile, global demand in 2018 is expected to average 97.6 million b/d, up 1.26 million b/d from OPEC’s 2017 forecast, which it kept unchanged from last month’s estimate of 96.4 million b/d.

OPEC, along with 10 key non-OPEC producers, recently agreed to extend their combined 1.8 million b/d output cut through March 2018, with ministers saying they expect the market to be rebalanced by the end of this year, as measured by OECD oil stocks falling to their five-year average.

As of May, the latest month for which it had available data, OPEC estimated that OECD commercial stocks fell 12.9 million barrels in the month to stand at 3.015 billion barrels, about 234 million barrels above the five-year average, with all regions witnessing stock draws.

An OPEC/non-OPEC monitoring committee composed of ministers from Kuwait, Russia, Venezuela, Algeria and Oman, is scheduled to meet July 24 in St. Petersburg to discuss market conditions and, if it sees fit, recommend any changes to the production cut agreement.

OPEC OUTPUT GROWS

OPEC’s crude output of 32.6 million b/d in June, as measured by the organization’s secondary sources, including the latest S&P Global Platts OPEC survey, represented a 40,000 b/d rise over May — and a 640,000 b/d rise from April.

The increases are largely driven by recoveries in Libya and Nigeria, both of which are exempt from the OPEC/non-OPEC production cut deal.

Libya’s output rose 130,000 b/d to 850,000 b/d in June, while Nigeria’s rose 100,000 b/d to 1.73 million b/d.

Ministers from both countries have been invited to the monitoring committee meeting to discuss their production outlook, amid speculation that OPEC may seek to impose an output cap on them.

Libya’s pre-conflict production level was about 1.6 million b/d in early 2014, while Nigeria’s production in late 2015 was as high as about 2 million b/d, before its oil facilities began to be targeted by militants in early 2016.

Saudi Arabia, OPEC’s largest producer, averaged 9.95 million b/d in June, according to secondary sources, though the kingdom self-reported to OPEC that it produced 10.07 million b/d, a 190,000 b/d rise from its self-reported May output level.

Going by its own figure, Saudi Arabia’s production rose above its quota under the OPEC/non-OPEC output cut deal of 10.06 million b/d for the first time since it went into force in January.

The deal, however, is based on an average of production throughout the agreement, and based on that, the kingdom remains 130,000 b/d below its quota.

Iraq saw its production rise 60,000 b/d in June to hit 4.5 million b/d, according to secondary sources. It self-reported a June production figure of 4.55 million b/d, down 14,000 b/d from May.

This is far above Iraq’s quota under the OPEC/non-OPEC deal of 4.35 million b/d, as it remains among the most non-compliant members.

Iran’s output was 3.79 million b/d in June, just below its quota of 3.8 million b/d, according to secondary sources, though it self-reported June output of 3.88 million b/d.

–Herman Wang, herman.wang@spglobal.com
–Edited by James Leech, james.leech@spglobal.com

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