OPEC slashed production in December, delivering a bullish signal to the market one month before the producer group officially began a fresh round of output cuts.
Last month, OPEC struck a deal with Russia and nine other nations to keep 1.2 million barrels per day off the market starting in January. The so-called OPEC+ alliance is trying to prevent another price-crushing oil glut. The cost of crude collapsed in the final quarter of 2018, stirring memories of the punishing 2014-2016 downturn.
The 14-nation OPEC got a jump on the agreement in December. Oil supplies from OPEC nations plunged by 751,000 barrels per day to nearly 31.6 million bpd, according to independent figures cited by OPEC in its monthly report.
Top oil exporter Saudi Arabia was the driving force behind the headline decline. The kingdom’s output plunged by 468,000 bpd to just over 10.5 million bpd last month, independent figures show. Data supplied directly by Riyadh show a 450,000 bpd drop to slightly more than 10.6 million bpd.
When OPEC announced the deal, Saudi Energy Minister Khalid al Falih initially said his country’s output would fall to 10.7 million bpd in December from a record high 11.1 million bpd in November. The Saudis are targeting another drop to 10.2 million bpd this month, Falih has said.
The pullback in OPEC production was deepened by supply disruptions in Libya and Iran.
Output in Libya fell by 172,000 bpd to 928,000 bpd in December, after a group of armed protesters and aggrieved workers took over the country’s largest oil field.
In Iran, production dropped by another 159,000 bpd to just under 2.8 million bpd, as the nation enters a second month under wide-ranging U.S. sanctions. The Islamic Republic has gone from being OPEC’s third biggest producer to its fifth largest, falling behind the United Arab Emirates and Kuwait in December.
Iraq saw the biggest jump in production in the final month of the year. It’s output rose 88,000 bpd to just over 4.7 million bpd. At that level, Baghdad would need to cut about 200,000 bpd in January to meet its quota under the supply cut agreement. Iraq, OPEC’s second largest producer, regularly pumped above its quota throughout the group’s last round of supply cuts.
December marks OPEC’s first monthly report since Qatar left the organization amid an ongoing blockade against the Gulf nation by neighbors including Saudi Arabia and UAE.
Excluding Qatar, OPEC forecasts demand for the group’s oil will average 30.8 million bpd in 2019, about 900,000 bpd lower than last year. Demand for OPEC’s oil fell by about 1.2 million bpd last year, the group says.
OPEC+ collaboration is ‘essential’
OPEC’s forecast for growth in oil supply and demand is largely unchanged from its last report. It sees worldwide consumption increasing by 1.29 million bpd to just over 100 million bpd.
OPEC revised its outlook for non-OPEC output growth slightly lower, but still sees 2019 supply growth at 2.1 million bpd, outstripping the increase in demand.
In its final report of the year, OPEC highlighted the rise in U.S. interest rates and tightening monetary policy elsewhere in the world. OPEC notes that central bankers appear poised to tap the brakes on further tightening in 2019, which could have implications for global economic growth and the oil market.
“While the economic risk remains skewed to the downside, the likelihood of a moderation in monetary tightening is expected to slow the decelerating economic growth trend in 2019,” OPEC said.
“If the anticipated moderation in monetary policies coupled with an improvement in financial markets materializes, this could provide further support to ongoing increases in non-OPEC supply.”
The potential increase in crude supply will make it essential for OPEC, Russia and other producer nations to continue coordinating production to keep the oil market balanced, the group said.
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