LONDON — OPEC on Monday predicted global demand for its crude oil will be less than previously thought in 2016 as supply from rivals proves more resilient to low prices, increasing the excess supply on the market this year.
The monthly report from the Organization of the Petroleum Exporting Countries contrasts with that of the International Energy Agency, which on Friday said producers outside OPEC were cutting production by more than it had expected.
Saudi Arabia in 2014 led a change in OPEC strategy to defend market share instead of cutting output to support prices, hoping to slow growth in rival supplies such as U.S. shale oil. The move accelerated a collapse in prices, which hit a 12-year low of $27.10 in January.
The price drop has started to slow the development of relatively expensive supply sources such as shale and forced companies to delay or cancel billions of dollars worth of projects, putting some future supplies at risk.
In the report, OPEC said it still expected supply from outside the group to fall by 700,000 bpd this year. But it revised up the absolute level of non-OPEC supply in 2015 and 2016, and said producer efforts to maintain output made its 2016 forecast more uncertain.
“There has been a reduction in production costs, mainly in the U.S., as well as increased hedging, with producers choosing to produce with losses rather than stopping production,” OPEC said. “This has caused the non-OPEC supply forecast in 2016 to become more uncertain.”
As a result, OPEC now expects the global demand for its crude to average 31.52 million bpd in 2016, down 90,000 bpd from last month’s forecast.
The group pumped 32.28 million bpd in February, the report said citing secondary sources, down about 175,000 bpd from January, mainly due to outages in Iraq and Nigeria.
Saudi Arabia told OPEC it kept output in February steady at 10.22 million bpd, after the top oil exporter struck a preliminary deal with fellow OPEC members Venezuela and Qatar, plus non-OPEC Russia, to freeze output.
Iran, which wants to regain market share after the lifting of Western sanctions on Tehran rather than freeze output, told OPEC it raised supply to 3.39 million bpd – about 250,000 bpd more than the secondary sources’ estimate.
The report indicates supply will exceed demand by about 760,000 bpd in 2016 if OPEC keeps pumping at February’s rate, up from 720,000 bpd implied in the previous report.