On Wednesday OPEC said it had offset a drop in sanctions-hit Iranian oil exports and lowered the 2019 forecast of demand for its crude, underlining the challenge the producer group faces to prevent a glut even after last week’s decision to trim output.
In a monthly report, the Organization of the Petroleum Exporting Countries said 2019 demand for its crude would fall to 31.44 million barrels per day, 100,000 bpd less than predicted last month and 1.53 million less than it currently produces.
Worried by a drop in oil prices and rising supplies, OPEC and its allies including Russia last week agreed to return to supply cuts next year. They pledged to lower output by 1.2 million bpd, of which OPEC’s share is 800,000 bpd.
OPEC expects global oil demand to slow next year and sees little support from the economic backdrop.
“Rising trade tensions, monetary tightening and geopolitical challenges are among the issues that skew economic risks even further to the downside in 2019,” OPEC said in the report. “The upside appears limited.”
The supply cut was a policy U-turn after the producer alliance known as OPEC+ had agreed in June to boost supply amid pressure from U.S. President Donald Trump to lower prices and cover an expected shortfall in Iranian exports.
OPEC changed course after prices dropped steeply from a four-year high above $86 a barrel in October on concern that demand was weakening amid adequate supply. Crude rose on Wednesday to trade above $61 a barrel.
Supply cuts that began in 2017 by OPEC and its allies had previously erased an inventory overhang that weighed on prices.
In another sign of excess supply, OPEC’s report on Wednesday said oil inventories in developed economies had risen back above the five-year average in October.