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Oil markets might be showing signs of concern over the global economy but the rest of the year is nonetheless looking rosy for oil-producing cartel OPEC with the 13-member oil producer group forecasting that the second half of 2016 will continue to see oil markets rebalancing.
According to OPEC's latest monthly report, which looked ahead to the second half of 2016, global economic conditions should continue to improve to reach global growth of 3.1 percent, OPEC said.
"Provided that there is a clearer picture regarding oil supply and demand, the expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year," the group said on Monday.
Focusing on the 13-member group's supply and demand forecasts for the second half of the year, OPEC forecast that global oil demand growth would continue to rise by 1.20 million barrels a day (mb/d) year on year. It said India would drive oil demand growth with China adding some support to that demand growth.
It projected that demand for OPEC crude in the latter half of 2016 was expected to average 32.6 mb/d, giving the oil cartel, which includes major Middle Eastern producers as well as Nigeria, Venezuela, Indonesia and Ecuador, room to expand its current oil output; in May, OPEC said the group's oil production averaged 32.36 mb/d.
While demand for OPEC crude was forecast to rise, the group repeated its prediction that markets would continue to see a contraction in supply from rival non-OPEC members to the tune of some 140,000 barrels a day compared to the first half of the year and almost 1 mb/d lower compared to the same period last year.
The latest report from the group of oil producers comes at a time when analysts are closely monitoring supply and demand for signs of a rebalancing after two years of falling prices.
Aside from concerns over OPEC supply, however, oil markets are keeping a close eye on the drawdown of U.S. crude inventories and general demand in the market. Renewed fears over an economic slowdown in Asia are weighing on prices again with oil prices falling in early trade on Monday with Brent futures trading at $50.16, down 37 cents from their last settlement. U.S. West Texas Intermediate (WTI) crude was down 43 cents to $48.63 on Monday morning.
Non-OPEC producers, such as those in the U.S., have had to dramatically cut back on oil production amid the price drop and OPEC chose to defend its market share rather than oil price.
OPEC noted that an increase in supply from some developing countries of some 270,000 barrels a day would be broadly offset by a decline of 280,000 barrels a day supplied by member countries of the Organization for Economic Co-operation and Development over the second half of the year.
"China's output is expected to increase by 60,000 b/d and production in Brazil is expected to increase by 270,000 b/d due to the start-up of two new projects. In the U.S., despite higher growth in the Gulf of Mexico, total U.S. output will decline by 150,000 b/d in the second half of the year compared to the first half of 2016. With the recovery of production disrupted by wildfire, supply in Canada is expected to grow by 60,000 b/d compared to 1H16," the report noted.
OPEC said that the above projections indicated "that the excess supply in the market is likely to ease over the coming quarters. To some degree, this has started to be seen in the slowing pace of inventory builds in U.S. commercial crude stocks," it said.
In May, commercial crude stocks saw a draw of around 8 mb, compared to an average 12 mb build over March and April, and a 19 mb increase over January and February, OPEC noted.
"Provided that there is a clearer picture regarding oil supply and demand, the expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year."
The June report is the first to come since OPEC met this month in Vienna. As with an earlier summit in Doha in April, the meeting ended with no agreement on changing the group's oil output policy or any new production ceiling.
Iran had proposed returning to a former country-based quota system for oil output but that failed to find unanimous agreement. The stalemate over oil output policy only served to highlight divisions between the members, particularly between Iran and OPEC's de facto leader Saudi Arabia, rival Middle-Eastern powerhouses.
Deadlock over output did not help to buoy the oil price either, which was hovering around the $50 a barrel mark at the time of the meeting. Prices have risen since the start of the year, however, leading some OPEC oil ministers to declare that the market was finally rebalancing anyway as non-OPEC supply withered, despite OPEC's decision to maintain record production levels.