Trade Disputes. Geopolitics. Rising Non-OPEC Supply Make for Challenging 2H19

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OPEC on Thursday said it faces a challenging second half of 2019. with demand-dampening trade disputes combining with expected robust non-OPEC supply growth to complicate the producer bloc`s oil market rebalancing efforts.

Its 1.2 million b d supply cut agreement with Russia and nine other non-OPEC allies expires at the end of the month. and in its closely watched monthly market analysis. OPEC said it must weigh a potential slowdown in global economic activity against geopolitical supply risks.

`The upcoming OPEC and non-OPEC ministerial meetings will carefully consider these developments. in order to ensure continued market stability.` OPEC said in the report.

Saudi Arabia. OPEC`s largest member. has advocated for a rollover of the cut agreement. saying oil inventories are still bloated. while Russia has said the coalition should consider more flexible quotas. given the expected impact of US sanctions on Iranian and Venezuelan crude supplies.

A proposal for a deeper cut has been floated. as well. with oil prices having slumped almost 20% in the last eight weeks.

The OPEC non-OPEC coalition has yet to even agree on a date for its meeting to decide on the deal`s future. with some countries favoring June 25-26 and others July 3-4.

In its report. OPEC`s analysts suggested that the organization`s 14 members could raise their production modestly and still keep the market in balance.

Though it revised downward its forecast of 2019 demand growth. OPEC`s `record-high conformity levels` with its quotas have pushed the bloc`s production below the expected level of demand for its crude. the report showed.

OPEC pumped 29.88 million b d in April. according to an average of the secondary sources used to monitor output.

But the call on OPEC crude will average 30.52 million b d for the year. including a robust 31.21 million b d in the third quarter. the report said.

Even so. OPEC said it would tread cautiously. The organization forecast that 2019 oil consumption will rise 1.14 million b d year-on-year. a downward revision of 70.000 b d from last month`s report. as `significant downside risks from escalating trade disputes spilling over to global demand growth remain.`

Non-OPEC supply. meanwhile. will grow at almost double that pace. at 2.14 million b d. unchanged from the previous forecast. led by US shale. as well as production ramp-ups in Brazil and the potential start-up of Norway`s Johan Sverdrup field.

OECD oil inventories rose 25 million barrels in April. according to the report. and are 7.6 million barrels above the five-year average that OPEC has said it is targeting with its production cuts. Crude stocks. however. are 200.000 barrels below the five-year average. while product stocks are 7.9 million barrels above.

FALLING OUTPUT

Saudi Arabia continued to maintain strong production discipline. pumping 9.69 million b d in May. according to secondary sources. That is 620.000 b d below its quota of 10.31 million b d under the deal.

Saudi energy minister Khalid al-Falih has repeatedly pledged to `do what is needed` to maintain oil market stability. including cutting further.

Sanctions-hit Iran produced 2.37 million b d in May. a 227.000 b d plunge from April. Sanctions waivers the US granted to eight countries allowing limited purchases of Iranian crude expired in early May and were not renewed.

Venezuela. also impacted by US sanctions. saw its production fall to 741.000 b d. a 35.000 b d drop from April and the lowest since a strike in late 2002 and early 2003 brought its oil industry to a near standstill.

Iraq. OPEC`s second-largest producer. raised output by 94.000 b d to 4.72 million b d in May. the report showed. That far exceeds its quota of 4.51 million b d under the OPEC non-OPEC agreement.