OPEC LOOKS TO BALANCE OIL DEMAND-SUPPLY DYNAMICS

After a promising start this year, crude oil prices have plunged 19% over the past month, compelling oil producers to consider output cuts to balance themarket.

The latest meeting of the Organisation of the Petroleum Exporting Countries (OPEC) and its non-member allies noted that the current oil supply and demand fundamentals, as well as prospects for 2019, point to higher supply growth than global requirements, taking also into account current uncertainties.

The OPEC-Non-OPEC Joint Ministerial Monitoring Committee also believes “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,” the countries said in a statement after a meeting in Abu Dhabi.

The oil trading organization is now making the case for production cuts to balance markets, noting that the oil inventories are piling up once again after a period of equilibrium in markets. OPEC cuts its projections for global oil demand growth by 70,000 barrels per day (bpd) to 1.29 million bpd, according to its November forecast.

“Although the oil market has reached a balance now, the forecasts for 2019 for non-OPEC supply growth indicate higher volumes outpacing the expansion in world oil demand, leading to widening excess supply in the market. The recent downward revision to the global economic growth forecast and associated uncertainties confirms the emerging pressure on oil demand observed in recent months,” OPEC said in its latest report.

Meanwhile, non-OPEC oil supply growth forecast for the new year was raised by 0.12 million bpd to stand at 2.23 million bpd, taking it to 62.09 million bpd.

“The US, Brazil, Canada and the UK are expected to be the main growth drivers, while Mexico, Norway, Indonesia and Vietnam are projected to see the largest declines,” said OPEC. “There are many challenges and uncertainties with regard to the 2019 non-OPEC supply forecast, including oil transport infrastructure constraints in the US and Canada.”

The OPEC report comes as the International Energy Agency (IEA) suggests greater investments in the oil sector is required to meet rising demand.

The IEA forecasts oil consumption to grow in coming decades, due to rising petrochemicals, trucking and aviation demand.

“But meeting this growth in the near term means that approvals of conventional oil projects need to double from their current low levels,” the IEA said in its latest World Energy Report.

“Without such a pick-up in investment, US shale production, which has already been expanding at record pace, would have to add more than 10 million bpd from today to 2025, the equivalent of adding another Russia to global supply in seven years – which would be an historically unprecedented feat.”

Shrugging off the short-term oil price volatility, Aramco is pursuing an ambitious path to become a major industrial company. In October, the state-owned oil company signed 15 memoranda of understanding (MoU), with a total value of USD 34 billion, with 15 international partners.

The MoU included an agreement with French energy company Total SA to launch engineering studies to build petrochemical complex in Jubail, while another MoU will focus on the potential creation of a retail service station network in the kingdom.

Aramco also signed an MOU with South Korea’s Hyundai Heavy Industries regarding potential investments in King Salman International Maritime Complex for Industries and Services at Ras Al Khair.

Other MOUs were with oilfield services companies Baker Hughes GE, Schlumberger Ltd., Halliburton Co., Oilfield Supply Center Ltd.

The spate of agreements also included an understanding with Flex-Steel Industries Inc. to invest in RTP reinforced thermoplastic pipe facility, and with UAE’s National Petroleum Construction Company to invest in a fully integrated fabrication yard and marine base.

An MoU with South Korea’s SeAH Changwon Integrated Specialty Steel Co. Limited was signed to invest in the localisation of engineering steel. In addition, Aramco signed an MoU with India’s GumPro Drilling Fluids Pvt. Ltd to invest in drilling chemicals facility.

Saudi Arabia’s ACWA Power and US Air Products & Chemicals are also in discussions with Aramco to develop gasification power project in Jazan Refinery, while Japan’s Sumitomo Corp. is considering a potential investment to upgrade PetroRabigh Refinery.

Chinese defence conglomerate China North Industries Group Corp is also mulling potential investments in refining and chemicals projects, while US National Oilwell Varco Inc. is eyeing investments in manufacturing and repair of onshore rigs and equipment.