OPEC Trims Oil-Demand Outlook, Making Case for Its Supply Cut
OPEC reduced forecasts for its required production in the fourth quarter by 440,000 barrels a day.
(Bloomberg) -- OPEC slashed projections for the amount of crude it will need to pump this quarter, making the case for the contentious supply cut announced last week.
The Organization of Petroleum Exporting Countries reduced forecasts for its required production in the fourth quarter by 440,000 barrels a day, and slashed estimates for global demand growth in the period by more than twice as much, according to its monthly report.
The downgrade to consumption gives further insight into the motivations for the substantial 2 million barrel-a-day supply cut agreed by Saudi Arabia and its allies on Oct. 5, a move that provoked fierce criticism from President Joe Biden and other US officials.
“Risks are skewed to the downside, with slowing growth in the global economy,” OPEC’s Vienna-based research department said in the report. Combined with “a possible resurgence of Covid restrictions in China and elsewhere,” the oil market may miss out on the typical seasonal uptick in consumption, it said.
Saudi Energy Minister Prince Abdulaziz bin Salman cited a “variety of convoluted uncertainties” last week for the OPEC production cutback, as several institutions have downgraded their forecasts for economic growth.
The International Monetary Fund warned on Tuesday that the worst of the current turmoil “is yet to come.” Oil prices slumped 23% in the third quarter, their worst rout in more than two years, putting OPEC nations’ revenue at risk.
Still, the demand revision from OPEC is eclipsed by the size of the cut announced by the coalition. Even if implemented only partially, it will bring OPEC output considerably below the average of 29.43 million barrels a day of crude the group believes it needs to supply in the fourth quarter.
President Biden slammed the Saudis’ decision, saying it bolsters oil revenues for Russia -- a key member of the OPEC+ alliance -- while Moscow wages war on Ukraine. He said the US needs to re-evaluate its relationship with the kingdom, though didn’t specify particular measures.
Output from OPEC’s 13 members rose by 146,000 barrels a day to 29.77 million a day in September as they implemented a symbolic hike announced after Biden’s visit to the kingdom this summer, according to the report. Still, most members fell significantly short of their production targets as they wrestle with under-investment and operational disruptions.
If the secretariat’s report is any guide, OPEC might be inclined to keep supplies restrained for much of next year. The group trimmed consumption estimates for 2023, and doesn’t expect demand for its crude to surpass current levels until the fourth quarter of next year.
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