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Sobering 2020 outlook for Nigeria, others as production output rises

Organisation of the Petroleum exporting Countries (OPEC’s efforts to boost oil prices look set to become even more challenging next year, with increasing competition for market share from higher non-OPEC output, the group’s first 2020 forecast shows.

Already, compliance on production within the cartel quotas fell sharply in June, as output gains in the month by Saudi Arabia and Nigeria, along with Iraq’s continued flouting of its cap, shrank the bloc’s margin despite its supply cut agreement.

According to Platts’ data, Nigeria’s production output rose to 1.97 million barrels per day (mbpd) last month, up from the 1.69mbpd quota under the cut agreement, signalling the nation’s highest output since January 2015.Under OPEC’s latest report, Nigeria saw the biggest jump in production, with a 130,000 b/d rise to 1.86mbpd, according to secondary sources.

The Federal Government self-reported an even higher figure of 1.96mbpd, some 270,000 b/d in excess of its quota, with promises to increase production.The producer group’s analysis arm, yesterday provided a sobering 2020 outlook for its 14 members, forecasting that demand for OPEC crude would drop more than four per cent from this year, as a production surge from the U.S., Brazil and Norway threatens its market share.

In its monthly oil market report that included its first forecast of fundamentals for next year, OPEC estimated that the so-called call on its crude would fall to 29.27mbpd in 2020, down 1.34mbpd from the 2019 projection, including an eye-catching 28.75mbd in the first quarter (Q1).

The call on OPEC crude denotes the threshold of how much oil the bloc can produce and still prevent a price-dampening accumulation of barrels going into storage.

OPEC pumped 29.83mbpd in June, according to an average of the six secondary sources used by the organization to track member output, including S&P Global Platts. OPEC, Russia and nine other allies last week agreed to extend their collective 1.2mbpd supply cut agreement through Q1 2020, but the data indicates they will have to cut further if they wish to keep the market balanced.

In its report, OPEC said its supply curbs would “avoid a destabilising build-up in oil inventories,” and that in extending the deal, OPEC and its partners were “reaffirming their continued commitment to promote and enhance oil market stability.”

Total oil stocks held by OECD countries stood at 2.925 billion barrels as of May, OPEC said, some 25mbpd above the five-year average that the bloc is targeting, though officials have said they may change the benchmark to a more stringent level.

The report forecast that global oil demand would rise next year by 1.14mbpd to reach 101.01mbpd, surpassing 100mbpd for the first time in history.But that would be more than offset by a 2.40mbpd boost in non-OPEC supply, led by a 1.70mbpd increase from the U.S., along with new fields coming online in Brazil and Norway.

Already by December 2019, U.S. crude oil production will average 13.33mbpd, OPEC estimated, with robust growth in shale output to come on the back of new debottlenecking infrastructure that will allow more oil to reach the market.“With 2.5 million b/d of expected new pipeline capacity from the Permian to the US Gulf Coast, production from the booming Permian Basin is forecast to grow without any constraints,” OPEC said.

Seasonal demand in Q3 will raise the call on OPEC crude to a robust 31.46mbpd, the report estimated, potentially providing a lift to oil prices that will be much welcomed by OPEC’s oil-dependent economies.The Q4 call will fall to 30.01mbpd still above the producer group’s June output level. But the 2020 forecast suggests the boom may end there.

The 29.83mbpd that OPEC pumped in June, according to secondary sources, was a 68,000 b/d fall from May.Largest member Saudi Arabia produced 9.81mbpd in June, a 126,000 b/d rise from May, secondary sources estimated, and well below its quota of 10.31mbpd under the OPEC/non-OPEC supply agreement. The kingdom self-reported a June production figure of 9.78mbpd.

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