Opec: Beware of oil glut

dubai - Agency forecasts a 700,000 barrel-per-day decline in demand for next year

The Opec on Tuesday warned of a glut in global oil supply amidst a 700,000 barrel per day decline in demand forecast for next year. This strengthens the UAE and Saudi views about cutting supplies to balance the supply-demand ratio for 2019.

According to the Opec's monthly report released on Tuesday, global oil demand will rise 1.29 million barrels per day in 2019, which is 700,000 barrels per day (bpd) less than its previous month's forecast. However, non-Opec supply would rise 2.23 million bpd next year, up 120,000 than previously forecast.

Saudi Arabia and the UAE on Monday said an oil supply cut is inevitable due to a glut in global inventories. US President Donald Trump urged Opec members not to cut supply as oil prices fell 2 per cent on Tuesday.

Most of the new supply for the next year will come from non-Opec members who will flood the market with an additional 2.23 million bpd.

In 2018, oil demand growth is anticipated to increase by 1.5 million bpd year on year, a downward revision of 40,000 bpd from the previous month, mainly due to weaker-than-expected demand from the Middle East and, to a lesser extent, China during Q3 2018. Expected total oil demand for the year is anticipated to reach 98.79 million bpd.

The Opec group will meet on December 6 in Vienna to set the policy for 2019.

Anita Yadav, head of fixed-income research at Emirates NBD, said the level of supply from Opec and non-Opec members, global GDP growth rate going forward, US dollar strength, geopolitical issues and sanctions that may affect oil supply from this region will dictate oil prices next year.

Dubai-based Emirates NBD expects the oil price to average $73 a barrel in 2018.

"Our expectation for oil prices in 2019 is also similar - somewhere between $70 to $75 a barrel. This assumes that demand will grow at roughly 1 per cent per annum," she said.

Manoj Krishnan, head of private wealth at Continental Financial Services, thinks the single biggest issue for oil would be the trade war impact which is difficult to estimate at the moment. "We need at least one to two quarters and see the impact on the overall global economy."

He forecast that technically the prices may range between $65 to $73 a barrel for the first half of next year before more clarity comes in.

Jameel Ahmad, global head of currency strategy and market research, FXTM, said the consensus coming out of the Opec meeting is that demand for oil will be somewhere around 31.5 million barrels per day next year, which is less than the current global output at around 33-34 million barrels per day.

"The real production output at present could be higher than these levels. Overall, the market environment and circumstances surrounding oil remain unpredictable with these conditions changing rapidly, with this being why the oil price is behaving so erratically in recent weeks," he said.

Ahmad said demand is likely to be one of the main factors that will dictate market fluctuations in the oil markets heading into next year.

He noted that warnings are being aired about slowing economic growth, meaning that there are risks of less demand for oil next year as a result of a slowdown in global economic conditions but this hasn't quite yet been fully factored into the oil price.

On Tuesday, the International Energy Agency forecast that demand for oil will peak in 2040. But it warned that the world could face a supply crunch without enough investment in new production.

The IEA said there will be 300 million electric vehicles on the road by 2040. It expects those vehicles will cut demand by 3.3 million barrels per day, up from its previous estimated loss of 2.5 million bpd in its last World Energy Outlook.

The IEA predicted that natural gas will overtake coal as the world's second largest energy source after oil by 2030. Global gas demand will increase by 1.6 per cent a year to 2040 and would be 45 per cent higher by than today. China, the world's biggest oil and coal importer, will soon become the largest importer of gas, it said.

- waheedabbas@khaleejtimes.com