OPEC said on Tuesday it had cut oil production steeply under a global supply deal, although it flagged headwinds confronting its efforts to prevent a glut this year including weaker demand and higher rival output.
In a monthly report, OPEC said its oil output fell almost 800,000 barrels per day in January to 30.81 million bpd. That is still slightly more than the demand OPEC expects for its crude on average in 2019.
Worried by a drop in oil prices and rising supplies, the Organization of the Petroleum Exporting Countries and its allies including Russia agreed in December to make supply cuts. Under the deal, OPEC is lowering output by 800,000 bpd from Jan. 1.
In the report, OPEC cut its forecast for 2019 world economic growth by 0.2 percentage point to 3.3 per cent and highlighted a range of headwinds such as a slowdown in global trade.
“Some recent positive developments could support the global economy at its current level, including the recovery in oil prices, possible progress in U.S.-China trade negotiations and less-ambitious monetary tightening by the U.S. Federal Reserve,” OPEC said in the report.
“Nevertheless, this would not lift the global economy beyond the growth forecast.”
Oil extended a rally on Tuesday above $63 a barrel. Crude has risen from less than $50 in December, supported by the Saudi Arabia-led OPEC cuts and involuntary declines despite concerns about slowing demand.
The supply cut was a policy U-turn after the producer alliance known as OPEC+ agreed in June 2018 to boost supply amid pressure from U.S. President Donald Trump to lower prices and cover an expected shortfall in Iranian exports.
OPEC changed course after prices slid from $86 a barrel in October, making the producers wary of a new glut. An OPEC+ cut from January 2017 had got rid of an earlier surplus.
In a sign of excess supply, OPEC’s report said oil inventories in developed economies were above the five-year average in December.
The biggest drop in OPEC supply last month came from Saudi Arabia and amounted to 350,000 bpd, the report showed.
With the supply cut delivered in January, the 11 OPEC members expected to cut supply under the deal achieved 86 per cent compliance, according to a Reuters calculation – a high rate by OPEC’s past standards.
This could rise in coming months as Saudi Arabia voluntarily lowers supply by more than it agreed.
Saudi Arabia plans to pump around 9.8 million bpd in March, more than 500,000 bpd below its target under the deal, its energy minister told the Financial Times.
And further declines in Iran, Libya and Venezuela – exempt from the supply pact – could give a tailwind.
OPEC said in the report that 2019 demand for its crude would decline to 30.59 million bpd, a drop of 240,000 bpd from its last report, as rivals such as the United States boost output and the slowing economy limits demand.
This implies that the global market would see a slight surplus of about 200,000 bpd in 2019 should OPEC keep pumping at January’s rate although – other things being equal – the Saudi plan to reduce supply further will offset this.
OPEC forecast global oil demand would grow by 1.24 million bpd in 2019, down 50,000 bpd from last month. Non-OPEC producers will boost output by 2.18 million bpd, 80,000 more than expected previously.