OPEC says demand will skyrocket by 2040. File Image / Pixabay
The Organization of the Petroleum Exporting Countries (OPEC) may have lost much influence to the U.S. shale juggernaut, but given the jittery state of the crude market all it took was another reduced demand forecast from the cartel to cause crude prices on Tuesday to plummet - this time by 7 percent for the U.S. benchmark.
West Texas Intermediate ended Tuesday's session down $4.24, or 7.1 percent, at $55.69, extending its record losing streak into a 12th consecutive session; Brent fell $4.28 per barrel, or 6.1 percent, to $65.84.
The losses followed the release of OPEC's latest monthly report in which the cartel forecast that world demand for crude will grow by 1.29 million barrels per day (bpd) in 2019, down 70,000 bpd from its projection last month; OPEC has revised its outlook lower every month since July.
Amrita Sen, chief oil market analyst, Energy Aspects
I think there is still some downside in this market ahead of the [OPEC] December meeting
OPEC also predicted that output from non-member nations will rise by 2.23 million bpd next year, up 120,000 bpd from its last forecast.
It stated, "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."
Amrita Sen, chief oil market analyst at Energy Aspects, told Bloomberg television, "we actually have a big, big supply deficit in around 2021-22, but I think what OPEC are talking about is a prompt oversupply," and she cited U.S. president Donald Trump granting some countries exemptions to his sanctions against Iraq for tilting the market into oversupply, compounded by aggressive U.S. crude production.
One analyst went so far as to suggest that Trump actually played OPEC for a fool in order to achieve the low oil prices he has long wanted for American motorists: Gary Ross, CEO of Black Gold Investors, said, "Trump led them to believe the Iranian exports would be zero; it turned out they're going to be 1.2 to 1.5 million barrels a day, way higher than people thought."
Sen went on to note that OPEC will have to take corrective action soon, and she added that "the market is really testing OPEC here and they want to ensure that OPEC actually takes off those barrels they put in....I think there is still some downside in this market ahead of the [OPEC] December meeting."
While it's anyone's guess what scheme Trump will concoct next to ensure that crude prices stay low, it seems in the longer view prices will skyrocket anyway due to what OPEC predicts will be a 33 percent surge on global energy demand over the next two decades.
In its report, OPEC pointed out that demand is expected to increase at an average annual growth rate of nearly 2 percent, reaching 365 million bpd in 2040, driven mainly by India and China.
The big question is whether OPEC cutbacks will be effective or not, especially considering members such as Iraq and Venezuela have openly stated their intent to boost production, and Russia of late has signaled in no uncertain terms its reluctance to cut output just because the cartel says so.