OPEC said global oil production outside the group is falling more sharply than expected, as producers continue to retrench almost two years after crude prices started its sharp descent.
The Organization of Petroleum Exporting Countries forecast on Wednesday that a long-expected contraction in non-OPEC oil supply was shaping up to be steeper than expected, Market Watch reported. In March, it forecast non-OPEC output would fall by 700,000 barrels a day this year. It is now estimating that drop will be 730,000 barrels a day.
The downgrade was due to lower expectations for oil production from China’s onshore mature fields and further declines in the US and the UK, where projects have been deferred due to lower oil prices.
The new estimate does not represent a dramatic revision to the group’s non-OPEC output expectations. But oil traders have been fixated recently on how today’s lower prices are affecting output. Many producers have been retrenching sharply, leading to growing expectations of a potentially sharp cutback in global supply that could help balance markets and buoy prices.
While the steeper-than-expected drop could be bullish for oil prices, OPEC also warned of rising uncertainties over global oil demand. The organization said it may deepen cuts to its forecast for global oil demand growth due to slowing economic expansion in emerging markets, warmer weather and the removal of fuel subsidies.
The 13-member group trimmed estimates for demand growth in 2016 by 50,000 barrels a day because of a slowdown in Latin America, projecting worldwide growth of 1.2 million barrels a day.
Weakness in Brazil’s economy, the removal of fuel subsidies in the Middle East and milder winter temperatures in the northern hemisphere could prompt further cutbacks, the group said.
“Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth, should existing signs persist going forward,” the organization’s Vienna-based secretariat said in its monthly market report.
“Economic developments in Latin America and China are of concern.”
Oil climbed to a four-month high in London on Tuesday, as OPEC nations prepare to meet Russia and other non-members in Doha, Qatar, this weekend to complete an accord on freezing oil production, an effort to tame the global crude surplus.
