OPEC expects oil demand growth next year due to cut production

The Organization of the Petroleum Exporting Countries (OPEC) expected Thursday to increase demand for its crude in 2018 due to growing world consumption and signaled signs of an improving oil market, with the reduction of OPEC-led production likely to save the market from oversupply that is putting pressure on prices.

In its monthly report issued today, the Organization of the Petroleum Exporting Countries said that "the world will need 32.42 million barrels per day of its oil next year, an increase of 220 thousand barrels per day than previously expected."

"The current market in Europe and North Africa has improved, and the increase in Brent crude prices for immediate delivery compared with subsequent supplies suggests that bottoming is on the decline," OPEC said.

"The future curve has stabilized completely for Brent amid some bullish signs in the current market. The price differentials have improved markedly for a number of basic raw materials in the Mediterranean, North Sea and West Africa markets."

Oil rose above $ 53 a barrel, ignoring data in the report showing another jump in OPEC production and likely to continue to oversupply the market next year.

OPEC has cut output by about 1.2 million barrels per day, while Russia and other non-OPEC producers cut their supplies by half by March 2018.

The agreement aims to discharge excess stocks. In a sign that it is a success, OPEC said stocks in developed economies fell in June and fell by 87 million barrels compared to an average of five years since the cut began in January.

"There is likely to be further decline in US crude inventories, taking into account the standard rates of US refineries," OPEC said.
Official data showed on Wednesday that the utilization rate of refineries recorded the highest level in 12 years.

High demand and production
OPEC raised its forecast for global demand for crude oil in 2017 and 2018, saying that "consumption will rise 1.28 million barrels per day next year," and expressed optimism about the global economy.

"The global economy has gained momentum, given the continued momentum of growth and the expectation of continued activity in the second half of 2017, there is still scope for a rise," the organization said.

But the report showed that "the Organization's supply of 14 oil-producing countries in July was higher than the expected demand led by increases in production of Libya and Nigeria, OPEC members exempted from the reductions led by the Organization."

OPEC said its oil production rose 173,000 barrels per day (bpd) in July to 32.87 million barrels per day (bpd), led by production of the two exempted members as well as Saudi Arabia, the world's top oil exporter, based on data gathered from secondary sources.

Saudi Arabia told OPEC it had cut its production to 10.01 million bpd last month from 10.07 million bpd in June, which means its output has returned to below the 10.058 million bpd target level.

The figures suggest that OPEC's commitment to a cut in production was 86 percent, according to Reuters calculations, down from 96 percent in June's preliminary estimate, but the compliance rate remains high.

Production outside the organization is also increasing, but not at the pace that OPEC believed.
The Organization expected to increase supplies outside of next year by 1.10 million barrels per day, a reduction of 40 thousand barrels per day than previously forecast based on downward adjustments in the expectations of Canada and the United States.

The report pointed out that the market will see a surplus of 450 thousand barrels per day next year if OPEC continues to pump crude at July rates, but less than the surplus estimated in the previous month's report.

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