Supply from oil producers outside the Organization of Petroleum Exporting Countries is set to fall further in spite of a rise in global oil demand, the organization said in its monthly report Monday, adding that it was in the best position to mop up an increase in demand.
In OPEC's October report, the 12-country producer group led by Saudi Arabia predicted world oil demand growth in 2015 to rise by 1.5 million barrels per day (mb/d), up around 40,000 barrels a day on the previous estimate.
Total oil demand is now forecast at 92.86 mb/d and in 2016, demand is predicted to rise to 94.11mb/d. Its forecasts were "mostly due to better-than-expected data in the third quarter of 2015," OPEC said Monday, not specifying what data.
In a positive sign for OPEC, it forecast that demand for OPEC crude in 2015 is estimated to stand at 29.6 mb/d, 0.3 mb/d higher than the previous report and 0.6 mb/d above the previous year's level. It forecast that demand for OPEC crude would continue to increase in 2016, around 1.2 mb/d higher than the current year.
The forecast increase in global demand is good news for OPEC, coming at a time when low oil prices have forced many rivals to cut production and drilling projects as they contend with high production costs.
Indeed, OPEC forecast that the supply of oil from rival non-members would decline further, helping to remove a glut from the market that has seen oil prices plummet over the last year.
"While the increase in non-OPEC supply last year was more than twice that of global oil demand growth, this relationship is expected to flip this year before widening further in 2016 so that world oil demand growth exceeds the change in non-OPEC supply."
"This should reduce the excess supply in the market and lead to higher demand for OPEC crude," the report said.
By contrast, it said non-OPEC supply would decline. "In terms of non-OPEC supply, the impact of lower oil prices on production has resulted in the supply growth forecast being downwardly revised to 720,000 barrels a day in 2015, some 600,000 barrels a day less than the initial forecast and well below the previous year," OPEC said Monday.
Non-OPEC producers, such as those in the U.S. and Canada, have found it harder to withstand the sharp drop in oil price – from around $114 last June to around $50 a barrel today -- than their OPEC competitors who have cheaper production costs.
There was hope last week that the global glut in oil supply and lack of demand could be easing, however, after data appeared to show a less-than-expected build in U.S. crude stockpiles.
Over the last seven days, benchmark Brent crude has risen from $48.06, peaking at $54.05 on Friday and trading at $50.80 after European stock markets closed on Monday.
Oil prices rose early Monday, before falling steeply, on the back of data that suggested U.S. supply could wane further as U.S. drillers cut oil rigs for the sixth straight week, removing nine oil rigs in the week ended October 9, data from oil services company Baker Hughes showed. Over 1,600 oil rigs have been removed from the same time period year ago.
U.S. shale oil producers have not been able to withstand the decline in global oil prices as much as producers in the OPEC group, which includes Middle Eastern nations, Venezuela and Nigeria among others.
Many analysts believe OPEC was happy to maintain record high production levels (rather than cut production in a bid to support prices) in order to defend its market share and put rival shale oil producers out of business.
The strategy appears to be bearing fruit, with producers in the U.S. and Canada closing rigs and cancelling drilling projects, a trend that OPEC believed would continue into 2016.
"In 2016, the postponing or cancelling of upstream projects will likely continue, resulting in contraction of 130,000 b/d in non-OPEC supply," OPEC said, adding that "U.S. oil supply in 2016 is expected to decline by 100,000 b/d."
Adding to the gloom, and perhaps more than a whiff of schadenfreude, OPEC signalled that the declines in non-OPEC supply could be even worse than forecast.
"The 2016 forecast for non-OPEC supply is associated with a high level of uncertainty. Oil price fluctuations and technical challenges – such as unplanned shutdowns and sharper-than-expected decline rates – along with geopolitical conditions could affect non-OPEC supply in the coming year."