OPEC slashes oil demand forecast but sees cuts helping restore balance

FILE PHOTO: A man works for Iraqi Drilling Company at Rumaila oilfield in Basra

LONDON (Reuters): OPEC yesterday again slashed its forecast for global oil demand this year as the coronavirus outbreak causes a global recession, although it said record supply cuts by the group and other producers were already helping rebalance the market.

The Organization of the Petroleum Exporting Countries (OPEC) now expects global demand to contract by 9.07 million barrels per day (bpd), or 9.1%, in 2020, it said in a monthly report. Last month, OPEC expected a contraction of 6.85 million bpd.

Oil prices have collapsed in 2020 with benchmark Brent hitting a 21-year low of $ 15.98 a barrel on 22 April.

To tackle the drop, OPEC and its allies agreed to a record supply cut, while the US and other nations said they would pump less. OPEC said these measures were already helping.

“The speedy supply adjustments in addressing the current acute imbalance in the global oil market have already started showing positive response, with rebalancing expected to pick up faster in the coming quarters,” OPEC said in the report.

Oil has recovered to $ 30 a barrel from the low last month and held onto an earlier gain after the report’s release.

OPEC expects this quarter to see the biggest drop in demand and lowered its demand forecast for the second quarter by 5.4 million bpd. Downside risks remain for consumption in the US, Europe and South Korea, OPEC said.

OPEC lowered its estimate of global economic growth in 2020, forecasting a contraction of 3.4% and saying the coronavirus crisis “has caused a recession in the global economy as well as an unprecedented oil demand shock”.

The supply pact agreed last month involves OPEC, Russia and other allies, a group known as OPEC+. The group agreed to cut output by 9.7 million bpd in May and June, starting on 1 May.

In its report, OPEC said its oil output in April rose, as some countries had ramped up production following the collapse on 6 March of a previous OPEC+ supply deal.

OPEC boosted supply in April by 1.8 million bpd to 30.41 million bpd, according to secondary sources cited in the OPEC report, due to extra barrels from Saudi Arabia, the United Arab Emirates and Kuwait.

Saudi Arabia told OPEC it pumped at a record 12 million bpd.