Opec sees more demand as it cuts output - GulfToday

Opec sees more demand as it cuts output

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Opec said on Tuesday that world demand for its oil would be higher than expected this year as supply growth from rivals including US shale producers slows, pointing to a tighter market if the exporter group refrains from raising output.

But the Organization of the Petroleum Exporting Countries, in a monthly report, said its output fell slightly in April as US sanctions added to the impact of an Opec-led supply-cutting pact.

Supply losses in Opec members Iran and Venezuela, both under US sanctions, have deepened the impact of the production-limiting deal. The so-called Opec+ group of producers meets next month to review whether to maintain the pact beyond June.

Vienna-based Opec trimmed its estimate of oil supply growth from outside the group in 2019 and said the rapid rise in production of US tight oil, another term for shale, was moderating.

“Supply growth is likely to be slower than last year amid the expected weaker global economic growth,” Opec said.

“US tight oil production is increasingly faced with costly logistical constraints in terms of out-take capacity from land-locked production sites.” Opec, Russia and other non-member producers are reducing output by 1.2 million barrels per day from Jan. 1 for six months. The producers meet on June 25-26 to decide whether to extend the pact.

Opec+ returned to output cuts this year due to concern that an economic slowdown would produce a supply glut. But demand has weakened no further for now, as OPEC kept its estimate of global growth in oil use in 2019 steady at 1.21 million bpd.

However, in a development that may raise Opec concern, the report said inventories in developed economies rose in March, after falling in February.

Stocks in March exceeded the five-year average - a yardstick Opec watches closely - by 22.8 million barrels, more than in February.

Meanwhile, oil prices rose on Tuesday after top exporter Saudi Arabia said explosive-laden drones launched by a Yemeni armed movement aligned to Iran had attacked facilities belonging to state oil company Aramco. Brent crude futures were at $71.02 a barrel at 1335 GMT, up 79 cents or 1.12%.

US West Texas Intermediate (WTI) crude futures were at $61.68 per barrel, up 64 cents or 1.05%.

Saudi Energy Minister Khalid al-Falih said Aramco had halted pumping on the East-West pipeline until the damage was evaluated, but that production and exports were continuing without disruption. “These attacks prove again that it is important for us to face terrorist entities, including the Houthi militias in Yemen that are backed by Iran,” Falih said, calling the attack an “act of terrorism” that targeted the world’s global oil supply. Saudi Arabia said earlier that two of its oil tankers were among those attacked off the coast of the United Arab Emirates on Sunday, incidents which ratcheted up tensions in the world’s top oil-exporting region. A US official said Iran was the likely culprit. Iranian officials denied responsibility.

Yemen’s Houthi group, which has been at war with the kingdom for over four years, said it had launched drone attacks on Saudi installations, without identifying the targets or time of the attacks. Tehran has been embroiled in an escalating war of words with the United States over stricter US sanctions, which have cut its oil exports and tightened global supply.

A fifth of global oil consumption passes through the Strait of Hormuz from Middle East crude producers to global markets.

“With rising tensions between Iran and the US, and with significant naval build-up in the region, markets are sensitive to news and can be tipped by the smallest signs of a conflict,” said Mihir Kapadia, CEO of Sun Global Investments. The market was also holding out some hope for flagging U.S.-China trade talks as both sides expressed positive sentiments, which may signal the negotiations are not yet dead.

The talks appeared headed towards success last week but have largely unravelled over US accusations that Beijing sought vast, last-minute changes.

China on Monday ignored a warning from US President Donald Trump and moved to impose higher tariffs on a range of US goods including liquefied natural gas.

“Price volatility is set to remain the theme in oil market over the coming sessions as ongoing trade spat between the United States and China ratchets up,” said Abhishek Kumar, head of analytics at Interfax Energy in London.

Reuters