OPEC forecast on Monday that the world oil market will be more balanced in the second half of 2016 as outages in Nigeria and Canada help to speed up the erosion of a supply glut.
In a monthly report, the Organization of the Petroleum Exporting Countries said its current production is lower than the average forecast demand for its crude in the second half of 2016. The last full quarter when OPEC pumped less than demand for its crude was in 2013, according to past OPEC reports.
Oil has risen to $50 a barrel from a 12-year low of $27 in January as the outages curb excess supply. These, say OPEC, are accelerating a tightening in the market it expected to happen anyway, as lower prices finally take their toll on higher-cost supply outside the group.
“The excess supply in the market is likely to ease over the coming quarters,” OPEC said in the report, resulting in “a more balanced oil market toward the end of the year.”
Prices collapsed from $100 two years ago in a drop that deepened after OPEC refused to cut output, hoping lower prices would curb rival supply. With signs the strategy is working, OPEC at a June 2 meeting made no change to its output policy.
Attacks on Nigeria’s oil industry, wildfires in Canada and losses elsewhere pushed the level of unplanned supply outages to the highest in at least five years in May.
But inventories are high and OPEC cautioned: “Nevertheless, there is still a massive global supply overhang.”
In Monday’s report, OPEC said its oil output fell 100,000 barrels per day (bpd) to 32.36 million bpd in May. That is 500,000 bpd less than OPEC’s forecast of the demand for its crude in the third quarter, and 160,000 bpd below the average of expected demand for OPEC crude in the second half.
That points to a tighter market than in the first quarter of this year, when OPEC said its output exceeded the demand for its crude by 2.59 million bpd and prices hit the 12-year low.
The price drop is hitting non-OPEC supply as companies have delayed or cancelled projects around the world. OPEC forecasts supply from outside producers will decline by 740,000 bpd in 2016 led by the United States, unchanged from last month.
OPEC supply had been climbing since the 2014 policy shift, reaching its highest since 2008 in April. The output drop in May was led by Nigeria, the report said, citing secondary sources.
OPEC stuck with a forecast that world oil demand will rise by 1.20 million bpd this year.
The next closely watched report on global oil supply and demand is due on Tuesday from the International Energy Agency.