OPEC reports big drop in crude production, amid ‘somewhat bearish’ market outlook

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London —
Led by its kingpin Saudi Arabia, which said it pumped at its lowest level in more than five years, OPEC on Friday reported it slashed its crude production in July, as it continues to battle slumping oil prices.

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OPEC pumped 29.61 million b/d last month, an 8.2% drop from June, it said in its closely watched monthly oil market report, which uses six independent secondary sources to track production. Many countries are far below the quotas they had committed to under a deal aimed at bolstering oil prices.

That should set the oil market up for a tighter second half of 2019, OPEC projected, though the producer group likely will need to rein in output further to avoid another bearish build-up of inventories in 2020.

“While the outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil demand growth, it remains critical to closely monitor the supply/demand balance and assist market stability in the months ahead,” OPEC said in the report.

OPEC’s analysts raised their projections of global demand for the bloc’s crude to 31.66 million b/d in the third quarter and 30.17 million b/d in the fourth quarter, indicating that if OPEC members maintain their current production levels, oil inventories should see a significant fall.

But the call on OPEC crude retreats to 28.85 million b/d in the first quarter of 2020 and 29.39 million b/d in the second quarter, the report estimated.

OECD oil stocks stood at 2.955 billion barrels as of June, 67 million barrels above the five-year average that OPEC and its allies have said they are targeting with their production cuts, the report said.

The data comes ahead of a key OPEC/non-OPEC monitoring committee meeting next month in Abu Dhabi, which delegates have said will likely examine if further action is needed to reverse the recent tumble in oil prices.

Front-month ICE Brent futures were trading at $59.25/b at 1047 GMT, up 1.75% from the previous close. But they are down more than 21% from their peak in late April, as trade tensions between the US and China have soured market sentiment.

The committee, co-chaired by Saudi Arabia and non-OPEC Russia, is tasked with monitoring market conditions and assessing compliance with production quotas. It will meet September 12 on the sidelines of the World Energy Congress.

The production accord, which OPEC signed with Russia and nine other non-OPEC countries in December, commits the 24-country coalition to 1.2 million b/d in supply cuts through March 2020.

FALLING OUTPUT

Saudi Arabia, the world’s largest crude exporter, reined in its output to 9.70 million b/d in July, a 134,000 b/d fall from June, according to secondary sources. But the kingdom, which has declared its intent to “lead by example” on the cuts, self-reported an even greater decline to 9.58 million b/d — some 730,000 b/d below its quota.

That is the lowest Saudi Arabia has pumped since March 2014 and is a counter-cyclical drop, as Saudi production typically rises in the summer as it burns more crude for power generation to meet air conditioning demand.

Also disclosing significant output losses were Angola, which said its production fell 160,000 b/d month on month, and sanctions-hit Venezuela, which reported a 140,000 b/d contraction.

The declines were partially offset by Nigeria, which revealed a 150,000 b/d gain in July to 1.95 million b/d — more than 260,000 b/d above its quota — despite pledges Wednesday by Mele Kyari, the head of its state oil company, that “Nigeria is totally committed to full compliance with the agreement.” Secondary sources had estimated a 20,000 b/d decline for Nigeria in the month.

Iran, also struggling under US sanctions, saw its output fall 50,000 b/d to 2.21 million b/d in July, according to secondary sources. The country did not self-report a figure for the month, as has been its habit since the sanctions were reimposed in November.

— Herman Wang, herman.wang@spglobal.com

— Edited by Alisdair Bowles, newsdesk@spglobal.com