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Opec sees rise in oil demand next year


Opec forecast higher demand for its oil in 2018 and said on Wednesday its production-cutting deal with rival producers was successfully getting rid of a glut, pointing to a tighter global market that could move into a deficit next year. In a monthly report, the Organization of the Petroleum Exporting Countries (Opec) said the market could find support in winter from low distillate fuel stocks and forecasts of colder weather, which would boost distillates demand for heating

Opec said the world would need 33.06 million barrels per day (bpd) of its crude next year, up 230,000 bpd from its previous forecast. That is its third consecutive monthly increase in the projection from its first estimate made in July.

The report illustrates the growing confidence of Opec officials that its supply cut is working. Oil has found support from the deal but, trading below $57 a barrel on Wednesday, crude is still half its mid-2014 level.

“With the market moving into the winter season, distillate fuel supplies are notably tight, representing a change from the excess supplies seen in the last two years,” Opec said in the report.

“Opec and key non-Opec oil producers continue to successfully drain the oil market of excess barrels.”

In a deal aimed at clearing the glut, Opec is curbing output by about 1.2 million bpd, while Russia and other non-Opec producers are cutting half as much, until March 2018.

The 14-country producer group said its oil output in September, as assessed by secondary sources, came in below the demand forecast, even though output climbed slightly.

The figures mean Opec has complied 98 per cent with the cutback pledge, according to a Reuters calculation, up from 83 per cent initially reported in August as the September rise was led by Nigeria and Libya which are exempt from the cut.

Opec said it pumped 32.75 million bpd in September, up about 89,000 bpd from August. Should Opec keep pumping at similar levels to September, the market could move into a deficit next year, the report indicates.

In a further sign that the supply excess is easing, Opec said inventories in developed economies declined by 24.7 million barrels in August to 2.996 billion barrels, 171 million barrels above the five-year average.

Opec now sees the global economy growing by 3.6 per cent this year and by 3.5 per cent in 2018, an increase by a tenth of a per centage point.

Increasing demand for oil will be matched by added supplies, but Opec’s forecasts for the balance of supply and demand foresee a greater reliance on the cartel’s output.

Oil prices tumbled from over $100 in 2014 after OPEC nations led by Saudi Arabia cranked up production to try to push out US shale producers which have higher production costs.

After oil tumbled below $30 last year, Opec shifted strategy with the production pact that has seen prices recover to fluctuate in the $50-55 range.

Opec’s forecasts see that in 2018 that both rising demand and non-Opec output will leave room for its members to pump more and reduce the glut in supplies.

However it doesn’t see prices climbing soon.

“Oil prices are expected to remain at $50-55/b in the next year,” Opec said.

“A rise above that level would encourage US oil producers to expand their drilling activities, otherwise the lower prices could lead to a reduction” in investments, it added.

The main international crude oil futures contract, Brent, was trading at around $56.83 in late morning London trading. The main US contract, WTI, was at $51.30.

A sharp increase in oil prices would tend to discourage consumption and thus growth.