OPEC cuts demand forecasts as US, Canada supply recovers

Dubai — OPEC has turned more bearish on the oil market's recovery from the coronavirus crisis, forecasting a more sluggish global economy and rising production from the US, Canada and Brazil, a month after the bloc and 10 allies eased their record cuts.

OPEC on Sept. 14 issued its latest oil market forecast, revising down its projection of global demand by 400,000 b/d for 2020 and by 770,000 b/d for 2021. At the same time, non-OPEC supply is expected to increase more than the organization had previously forecast. The global economic growth estimate was lowered to minus 4.1% for 2020 from minus 4%.

The outlook puts pressure on members of the OPEC+ alliance in their role as the market's swing producers to remain disciplined if they want to speed a further recovery in oil prices.

OPEC and 10 allies, including Russia, in May implemented the largest coordinated production cut in history, of 9.7 million b/d -- close to 10% of pre-pandemic demand -- during the depths of the market's collapse, helping Dated Brent prices to about triple from their 21-year low in April, to around $39/b in recent days.

The cuts have been scaled back to 7.7 million b/d from August through the end of the year and are expected to relax even further to 5.8 million b/d from January 2021 through April 2022.

But while OECD commercial oil inventories fell by 4.5 million barrels in July to 3.231 billion barrels, they are still 260.6 million barrels above the latest five-year average that the OPEC+ alliance has said it is targeting with its production cuts, and coronavirus infection rates are increasing, OPEC said in its report.

"Further downside risk and higher uncertainty in the economic outlook exist for the near term, as India's economy may not be through the worst of the situation yet," OPEC said. "With this in mind, it is likely that fiscal stimulus will require a large boost."

S&P Global Ratings Sept. 14 cut its forecast for Indian economic growth for fiscal year 2020-21 (April-March) to minus 9% from minus 5%.

OPEC pegged global demand for its crude in 2020 at 22.61 million b/d, or 750,000 b/d lower than last month's forecast.

OPEC output

OPEC pumped an average of 24.05 million b/d in August, according to secondary sources used by the organization to track output, marking a 760,000 b/d rise from July.

OPEC cited "several sources" as predicting a slow but steady recovery in oil prices into 2021, "assuming an uptick in demand as well as OPEC+ adhering to production adjustments, although concerns for a second wave of COVID-19 pandemic remain high."

For 2021, the call on OPEC crude rises to 28.15 million b/d.

OPEC+ officials have said they will remain vigilant in monitoring the market, with a key committee co-chaired by Saudi Arabia and Russia, meeting monthly to assess compliance with quotas and recommend any adjustments to the cuts if needed.

The monitoring committee next meets online Sept. 17.