Rystad Energy expects the oil market balance outlook to slip further toward oversupply later in the year, after the initial effect of the new IMO 2020 marine fuel regulations wears off and demand fears creep back into the market. It forecasts an average call-on-OPEC of 28.9 million b/d for the subsequent three quarters.
The 14-country Organization of Petroleum Exporting Countries (OPEC) bloc, Russia, and a host of other OPEC+ countries agreed Dec. 6, 2019, to deepen the group’s target oil-production cuts by just more than 500,000 b/d, to 1.699 million b/d from 1.195 million b/d effective Jan. 1, 2020.
“The OPEC cuts didn’t fully solve the problem – instead they offer a light bandage to get through the first quarter of 2020, but after that, we believe the market will begin to realize the looming over-supply reflected in our balances and call-on-OPEC,” said Bjørnar Tonhaugen, head of oil market research at Rystad Energy.
The conclusion that deeper cuts are needed is driven by supply analysis pointing to a surplus of oil despite the most recent OPEC+ policy. Rystad found that OPEC production is likely to average 29.3 million b/d for first-quarter 2020, compared with its predicted call-on-OPEC of 29.0 million b/d.
“As long as OPEC sticks to production pledges and Saudi Arabia cuts an additional voluntary 400,000 barrels as promised, the implied production target for OPEC is 29.2 million bpd – above our call-on-OPEC and thus likely to result in stock builds and downward pressure on oil prices,” says Tonhaugen.
