OPEC Stays Upbeat on 2015 Oil Demand
VIENNA: OPEC is sticking to its forecast that oil demand will pick up this year but warned that over-supply may still keep a “ceiling” on oil prices, even as it kept on increasing its own output to a two-year high.
The Organization of the Petroleum Exporting Countries stuck to its prediction of total oil demand in 2015 of 92.5 million barrels per day, up 1.18 mbpd from 2014.
Consumption is expected to pick up pace in the second half in line with a global economic rebound, the 12-country group said in its June monthly report.
Saudi Arabia told OPEC it raised output to 10.33 million bpd in May, the highest rate on record.
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If OPEC keeps pumping at May’s rate, the report indicates the surplus on world markets will shrink to 440,000 bpd in the second half of 2015, less than an average of 1.66 million bpd implied for the full year.
However, the full-year surplus is higher than the 1.52 million bpd implied by last month’s report.
OPEC said that the oil price rose above $60 in May, a high for the year, on the back of higher demand and other factors including “geopolitical turmoil.”
However, it said that “overall fundamentals still point to a well-supplied market that continues to put a ceiling on prices.”
Oil prices collapsed 60 percent between last June and January when it hit a low of $45. This was due in part to a supply glut caused by the boom in US shale oil.
But OPEC, which has traditionally defended price levels by cutting output if needed, dramatically switched strategy last November when it opted to leave its production target unchanged.
At its bi-annual production meeting last week in Vienna, OPEC stuck to this strategy, keeping its output target unchanged at 30 million barrels per day.
This is seen as an attempt to maintain market share and put pressure on US shale oil producers, which need a higher oil price to be profitable than in traditional extraction methods — a strategy that experts say has had some success.
In Wednesday’s monthly report, OPEC said that sustained lower oil prices “could create serious complications for oil companies, especially companies that depend on fracking and other advanced methods of production.”
“If oil prices remain low for too long, the industry will likely go through a period of consolidation,” it said.
Actually OPEC has been producing more than its 30 mbpd target, and is continuing to increase production.
The report showed that Saudi Arabia increased its crude output to 10.333 mbpd in May, a level one market analyst said is the highest in three decades.
The 12-nation cartel’s overall crude output rose increased by nearly 24,000 barrels per day to 30.975 mbpd in May, OPEC said citing secondary sources.
That is OPEC’s highest level of output in over two years, according to Capital Economics.
“Last month’s small increase in supply from OPEC just adds to the glut of oil already in the market and underlines the cartel’s commitment not to cut output just to support prices in the short term,” said the firm’s Commodities Economist Tom Pugh.
“The upshot is that with ample supplies for the rest of this year, we think the risks to prices are weighted to the downside,” he said, adding that their forecast for Brent oil at the end of this year remains at $60 per barrel.
Brent North Sea crude for July jumped $1.03 to stand at $65.91 in London afternoon trading.