OPEC revised down by another 400,000 bpd its forecast for global oil demand this year, expecting consumption to shrink by 9.5 million bpd over 2019, cutting forecasts for the second month in a row as risks with the pandemic and economic activity remains skewed to the downside.
In its Monthly Oil Market Report (MOMR) published on Monday, OPEC said that it expects global oil demand to average 90.2 million bpd this year, down by 9.5 million bpd compared to 2019.
In last month’s report, OPEC expected the world’s oil demand to drop by 9.1 million bpd in 2020, which was also a larger demand loss than the cartel had previously expected.
In today’s report, the cartel said that “risks remain elevated and skewed to the downside, particularly in relation to the development of COVID-19 infection cases and potential vaccines. Furthermore, the speed of recovery in economic activities and oil demand growth potential in Other Asian countries, including India, remain uncertain.”
OPEC also lowered its demand outlook for next year by 400,000 bpd, expecting global oil demand to rise by 6.6 million bpd from this year’s levels. This means that OPEC does not expect oil demand to return to pre-crisis levels next year.
As OPEC turns 60 on Monday, the cartel says it is ready to meet the challenges of the next 60 years and ensure a balanced and stable oil market.
Sixty years after Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela founded the Organization of the Petroleum Exporting Countries on September 14, 1960, OPEC vows to continue playing a major role on the global oil market, as it remains “focused on a balanced and stable oil market, in the interests of both producers and consumers, as most recently exhibited through the Declaration of Cooperation and the historic production adjustments of 2020.”
“What is clear is that what was set in motion has stood the test of time; OPEC still has the same core objectives, of order and stability in global oil markets, but its role has also broadened considerably, in terms of deeper cooperation with other producers, dialogue with a host of industry stakeholders, and an embrace of human concerns such as sustainable development, the environment and energy poverty eradication,” OPEC Secretary General Mohammad Barkindo said in a statement.
OPEC and a dozen non-OPEC producers led by Russia are currently withholding 7.7 million bpd of combined crude oil production from the market, hoping to rebalance supply and demand after demand crashed in the pandemic earlier this year.
The cartel has succeeded in stabilizing oil prices at around $40 a barrel for a few months, but the faltering demand recovery continues to keep oil prices much lower than all OPEC members need to balance their budgets.
At the same time, OPEC+ is easing its production cuts and has yet to (if ever) bring all participating producers into perfect compliance with their quotas.
This increased supply and uncertain demand recovery are now tipping the market into oversupply, as the weak physical markets and widening contango structure in the oil futures market suggest.
Apart from the short-term challenge to rebalance the oil market, OPEC faces an existential conundrum of how relevant it would be at a time when the pandemic and the push towards low-carbon energy might have significantly accelerated the timeline of peak oil demand.