OPEC's cautious optimism in July that the global economy was rebounding faster than expected from the coronavirus pandemic has dimmed, just as the oil exporting bloc and its allies are easing off their historic production cuts.
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OPEC on Aug. 12 issued its latest oil market forecast, revising down its projection of global demand by almost 100,000 b/d for both 2020 and 2021.
At the same time, non-OPEC supply is expected to increase more than the organization had previously forecast.
The outlook puts pressure on members of the OPEC+ alliance, in their role as the oil 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 more than triple from their 21-year low in April to around $45/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 will relax even further to 5.8 million b/d from January 2021 through April 2022.
But high oil inventories -- due in large part to the short-lived Saudi-Russian price war in April -- will take some time to work down, and the path of coronavirus infections remains uncertain, OPEC acknowledged in its report.
"Looking ahead, crude and product price developments in 2H20 will continue to be impacted by concerns over a second wave of infections and higher global stocks," OPEC said. "Product inventories may remain elevated due to weak road and air transport fuel demand, while gasoil, fuel oil and naphtha prices are expected to continue to receive some support from sectors less affected by the pandemic such as the home heating and petrochemical sectors."
Cuts still needed
OPEC pegged global demand for its crude for 2020 at 23.36 million b/d, about 440,000 b/d lower than last month's forecast.
OPEC pumped an average of 26.93 million b/d in the first half of the year and 23.17 million b/d in July, according to secondary sources used by the organization to track output.
The July figure was a 980,000 b/d rise from June, when Saudi Arabia, the UAE and Kuwait had made voluntary additional cuts to speed the market's rebalancing.
The report said the data "points to the need for continued efforts to support market rebalancing," both through voluntary production discipline and through stimulus measures by consuming countries to juice the global economy.
For 2021, the call on OPEC crude rises to 29.29 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.
Members that exceeded their production quotas will have to make compensatory cuts in the coming months, moderating the full impact of relaxing the OPEC+ deal, ministers have said.
The monitoring committee next meets online Aug. 18.