Opec said on Wednesday that demand slowed last month as its members’ output grew, including record output from leading producer Saudi Arabia.
“Product markets in the Atlantic Basin weakened during July, despite petrol demand hitting record levels in the US during the peak of the driving season,” the oil producers’ group said in its monthly report.
“The bearish sentiment was fuelled by high petrol inventories and slowing demand for middle distillates”, with the latter referring to diesel mainly, according to Opec.
The result was that refineries cut their runs by more than 10 per cent as margins were squeezed.
Opec production, meanwhile, increased last month by 46,000 barrels per day to average 33.11 million bpd, with Saudi Arabia’s output hitting a record 10.67 million bpd, up 123,000 bpd from June. The Opec total takes into account output declines in seven countries.
The UAE also hit a record production of 3.18 million bpd, up 13,000 bpd on the month. It averaged 3.03 million bpd over the second quarter, up 75,000 bpd from the first quarter.
Iran also registered a big increase as it continued to rehabilitate its industry after nuclear-related sanctions limiting exports were lifted this year. Iran’s output last month exceeded 3.6 million bpd, about 500,000 bpd above its first-quarter average.
The Opec president and Qatari energy minister, Mohammed Al Sada, said this week he expects an improvement in demand later this year to help reverse the bearish market over the past month. But he also noted that Opec oil ministers would meet informally on the sidelines of a gathering in Algeria next month.
Benchmark North Sea Brent crude futures recovered strongly from January’s 12-year low to double by June to above US$52 per barrel, but dropped 19 per cent the following month to below $42 per barrel. They bounced recently and were up 28 cents at $45.26 per barrel late on Wednesday.
Opec left its demand forecast for this year unchanged. After a fairly weak increase for world demand in the first half of the year, bringing it to an average just above 93 million bpd, demand would have to grow by about 2 million bpd in the second half to meet the year’s forecast of 94.26 million bpd.
Meanwhile, Opec said data showed the world oil supply increased last month by 240,000 bpd to an average of 94.14 million bpd. Even assuming Opec’s demand increases, it expects demand for its crude to average 31.9 million bpd this year, compared to July’s output total of 33.1 million bpd.
In the US, which accounts for more than a third of the developed world’s inventories, preliminary July data showed a rise of 14.5 million barrels to 1.39 billion barrels, or about 8 per cent above last year’s level and about 20 per cent above the five-year average.
Saudi Arabia has been the driving force in Opec’s laissez faire policy over the past two years aimed at forcing high-cost producers off the market. As its record output last month shows, its priority is to maximise market share while forcing producers in North America and other higher-cost areas to take on the role of “swing producer” for the world.
So the Algeria meeting is likely to be just an attempt by Opec to “verbally intervene” to slow the sell-off, says oil and gas analyst Charles Swabey at BMI Research.
Mr Swabey said Opec’s ability to influence price “relies on the credible promise or threat of action. In this respect, Opec’s credibility has come into question”.
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