JAKARTA (TheInsiderStories) – Organization of the Petroleum Exporting Countries (OPEC) and Non-OPEC has agreed to cut oil production amid United States (US) President Donald Trump to critics. The cut is by 1.2 million barrels per day (bpd), even bigger than the market predicted.
In the 5th OPEC+ Ministerial Meeting was held in Vienna, Austria, on Friday (12/07), the members agreed OPEC to cut 800 thousand bpd while non-OPEC will contribute 400 thousand bpd cut. The oil production cut will start in January 2019, and will be evaluated again in April.
“Following deliberations on the immediate oil market prospects and in view of a growing imbalance between global oil supply and demand in 2019, we decided to adjust the overall production by 1.2 million bpd, effective as of January 2019 for an initial period of six months,” said the Co-Chairmanship of OPEC’s President, Suhail Mohamed Al Mazrouei said in official statement on Friday (12/07).
OPEC’s decision made oil prices jump to US$63 per barrel on Friday.
The organization also recalling the ‘Declaration of Cooperation’ (DOC) reached on Dec. 10, 2016, between OPEC and non-OPEC producing countries.
Reaffirming the continued commitment of the participating producing countries in the DOC to a stable market, the mutual interest of producing nations, the efficient, economic, and secure supply to consumers, and a fair return on invested capital, and noting the overall improvement in market conditions and sentiment, and the return of confidence and investment to the oil industry.
The Joint Ministerial Monitoring Committee (JMMC) was requested to monitor the fair implementation of the above mentioned resolution and report back to the Meeting. Next OPEC and non-OPEC Ministerial Meeting will convene in Vienna, Austria, in April 2019.
Previously, The OPEC and Non-OPEC JMMC convened in Abu Dhabi, United Arab Emirates, for its eleventh meeting on Nov. 11, 2018 considers to cut the productions in 2019.
OPEC and a group of oil producers including Russia began cutting their output in January 2017 in order to drain a global crude glut that sent oil prices from over US$100 a barrel to under $30. In June, the group agreed to restore some of that output after its members cut more deeply than they intended and as oil prices hit 3 and half-year highs.
The Committee reviewed current oil supply and demand fundamentals and noted that 2019 prospects point to higher supply growth than global requirements, taking into account current uncertainties.
The group producers also noted that the dampening of global economic growth prospects, in addition to associated uncertainties, could have repercussions for global oil demand in 2019 – and could lead to widening the gap between supply and demand.
Last September, OPEC predicts the demand for world oil until 2023 will decline even though energy demand is getting higher amid the global economic expansion.
The fall in demand for OPEC crude is caused by strong oil supplies from non-OPEC countries, especially oil supplies from the United States (US). The organization added, the US is still the largest source of supply in the medium to long term. The US contributes to two-thirds of additional supplies driven by soaring oil production levels.
As is well known, the US has pushed its oil production to a record level of 11 million bpd in recent years as new technology revolutionizes shale oil production and opens up reserves that were previously considered uneconomical.
In addition, the US also imposed sanctions on OPEC members, Venezuela and Iran, which pushed Brent oil prices closer to the highest level since 2014 at around $80 per barrel, and spurred US producers to increase production.
OPEC has revised the prospect of growth in crude oil and non-OPEC production in 2023 to 4 million bpd higher than last year’s report. It said non-OPEC would produce 66.1 million bpf of crude oil and liquid fuel by 2023, up from 57.5 million bpd in 2017.
Meanwhile, the US is projected to increase oil production to 13.4 million bpd by 2023, from 7.4 mb/d in 2017 so that total US output reaches 20 mb/d, OPEC added. This will make the US, after becoming the largest crude oil importer, will also be able to meet its own oil needs.
As a result of these changes, OPEC crude demand is predicted to decline to 31.6 mb/d by 2023, from 32.6 mb/d in 2017. In its 2017 report, OPEC expects crude oil demand to be around 33 mb/d in the mid-2020s.
Nevertheless, OPEC still believes global oil demand will begin to recover and continue to rise to reach 40 mb/d in the next 2040. Moreover, OPEC sees global oil consumption until 2020 will reach 101.9 mb/d, up 1.2 mb/d from estimates in last year’s report.
Meanwhile, global oil demand in the longer term is expected to increase by 14.5 mb/d to reach 111.7 mb/d in 2040, slightly higher than last year’s forecast. In the long run, OPEC still hopes to maintain a balance between global market share and oil supply, especially in conditions of abundant and cheap reserves to be extracted.
Some specific highlights from this year’s World Oil Outlook like oil is expected to remain the fuel with the largest share in the energy mix throughout the forecast period to 2040. Total primary energy is set to expand by a robust 33 percent between 2015 and 2040, driven predominantly by developing countries, which see almost 95 percent of the overall energy demand growth.
Meanwhile, demand growth is driven by non-OECD regions, which see a huge increase of around 23 mb/d to 2040. Its added, there is no expectation for peak oil demand over the forecast period to 2040.
Furthermore, OPEC said, long-term demand growth comes mainly from the petrochemicals (4.5 mb/d), road transportation (4.1 mb/d) and aviation (2.7 mb/d) sectors. The total vehicle fleet – including passenger and commercial vehicles – is projected to increase to around 2.4 billion in 2040.
It said, the majority of the growth continues to be for conventional vehicles, but the long-term share of electric vehicles in the total fleet is projected to expand and reach a level of around 13 percent in 2040, supported by falling battery costs and policy support.
Non-OPEC liquids supply is forecast to increase by more than 9 mb/d between 2017 and 2027, with the major driver being US tight oil, but beyond this period non-OPEC supply is set to decline by around 4 mb/d.
The demand for OPEC crude is projected to increase to around 40 mb/d in 2040, up from 32 mb/d in 2018. While, the share of OPEC crude in the global oil supply is estimated to increase from 34 percent in 2017 to 36 percent in 2040.
OPEC said, global refinery additions are projected mainly in developing regions, led by the Asia-Pacific and the Middle East, but also Africa and Latin America. Fast evolving trade patterns for crude oil and refined products will continue to evolve, driven initially by additional flows from the US & Canada, and in the long-term by the Middle East, mostly attributed to increasing imports to the Asia-Pacific.
Talking about investment, OPEC sees, in the period to 2040, the required global oil sector investment is estimated at $11 trillion.