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OPEC Sees Rival Supplies Growing Most in Five Years in 2019

CommoditiesJul 11, 2018 08:20AM ET
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© Bloomberg. A pumpjack operates above an oil well at night in the Bakken Formation on the outskirts of Williston, North Dakota, U.S., on Thursday, March 8, 2018. When oil sold for $100 a barrel, many oil towns dotting the nation's shale basins grew faster than its infrastructure and services could handle. Since 2015, as oil prices floundered, Williston has added new roads, including a truck route around the city, two new fire stations, expanded the landfill, opened a new waste water treatment plant and started work on an airport relocation and expansion project. Photographer: Daniel Acker/Bloomberg

(Bloomberg) -- OPEC expects supplies from its rivals to increase by the most in five years in 2019, with extra oil from the U.S. alone sufficient to meet the growth in global demand.

In its first detailed outlook for 2019, the Organization of Petroleum Exporting Countries indicated that the North American oil boom means OPEC members are already producing enough crude to cover what will be needed from them. That could still change, however, as the group’s output is threatened by a spiraling economic crisis in Venezuela and renewed U.S. sanctions on Iran.

The report may fuel the debate that’s splitting the organization. Saudi Arabia, OPEC’s biggest producer, is resolved to increase oil output amid pressure from the U.S. to cool rallying prices. Iran, which is seeing customers flee as American sanctions kick in, argues that other members are betraying the group if they raise supply.

“If the world economy performs better than expected, leading to higher growth in crude demand, OPEC will continue to have sufficient supply to support oil-market stability,” the organization’s secretariat in Vienna said in the report.

On July 4, President Donald Trump renewed criticism of the group by tweeting that OPEC isn’t doing enough to tame prices, which at about $74 a barrel in New York are near their highest in more than three years.

Global oil demand will climb by 1.45 million barrels a day in 2019, slightly below this year’s growth rate, to average 100.3 million barrels a day, according to the report.

The growth in non-OPEC supply will be considerably stronger though, at 2.1 million barrels a day, the most since 2014. Though the shale-oil boom is slowing because of pipeline constraints, the U.S. will still contribute about three-quarters of the global supply expansion, enough to meet the growth in world consumption.

Rivals Ramp Up

That surge reflects how output curbs by OPEC over the past 18 months have emboldened the group’s rivals, giving shale drillers and other producers the higher prices they needed to resume operations.

As a result, OPEC’s 15 members will need to provide an average of just 32.2 million barrels a day next year, slightly below the 32.3 million they pumped in June.

Maintaining that level, however, will be a contentious process.

Venezuela’s output continues to sink to the lowest in decades as its economic meltdown takes a toll on oil infrastructure and workers. More crucially, Trump’s administration is trying to choke off exports from Iran after quitting a nuclear accord with OPEC’s third-largest producer.

Saudi Arabia, the United Arab Emirates and Kuwait are already boosting supplies, the report showed. The Saudis have raised output by 405,400 barrels a day to 10.42 million, the biggest jump in more than three years, according to OPEC.

But attempting to compensate for a halt in Iranian exports -- currently at about 2.5 million barrels a day -- would almost certainly strain the abilities of Saudi Arabia and its partners.

It could also stretch relations within the organization to breaking point. Iran insists that output limits assigned to each country in late 2016 still apply, and that any country producing above these quotas is violating the agreement.

“If OPEC survives as an organization, it will have to be without Iran,” said Olivier Jakob, managing director of consultants Petromatrix GmbH in Zug, Switzerland.

(Updates with detail on size of increase in first paragraph.)

OPEC Sees Rival Supplies Growing Most in Five Years in 2019

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