OPEC Had a Very Bad August

The Organization of the Petroleum Exporting Countries (OPEC) saw the price of its reference basket of crude oil components drop by 7.9% in August to $59.62 a barrel, more than the 7.3% drop in Brent crude or the 4.7% drop in West Texas Intermediate (WTI) crude. For analysts and investors still trying to explain the replacement of Saudi oil minister Khalid al-Falih, the search for an explanation should now be clear.

To compound the cartel’s troubles, OPEC now expects demand for crude to drop from prior year-over-year growth of 1.10 million barrels a day to 1.02 million barrels. OPEC attributed the downward revision to weaker-than-expected demand in the first six months of the year and lower projections of global economic growth for the rest of the year. The cartel also revised downward its projection for 2020 demand growth from a prior estimate of 1.14 million barrels a day to 1.08 million barrels, again due to downward revisions to estimates for world economic growth.

The data was published Wednesday in OPEC’s Monthly Oil Market Report for September. The cartel cited the continuing economic slowdown in the United States and Europe, slower-than-expected demand growth in India, problems with Argentina’s sovereign debt and the ongoing trade dispute between the United States and China.

A further drag on crude prices is rising supply. OPEC raised its non-OPEC supply estimate for 2019 by 10,000 barrels a day to 1.99 million barrels, based on increased production in Russia, Kazakhstan, Australia and Canada more than offsetting a downward revision of 65,000 barrels a day in U.S. supply growth, from 1.87 million barrels a day to 1.80 million barrels.

OPEC’s projection for 2020 U.S. supply growth dropped by a whopping 165,000 barrels a day. Total non-OPEC supply growth for next year is projected at 2.25 million barrels a day, down by 140,000 barrels compared with last month’s projection. Total non-OPEC supply for the year is now forecast at 66.65 million barrels a day.

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2019 demand for OPEC crude is now forecast to drop by a million barrels a day to 30.6 million barrels. Projected demand for OPEC crude in 2020 was unchanged at 29.4 million barrels a day, about 1.2 million below the forecast demand for this year.

Brent crude traded up about 0.5% Wednesday morning at $62.73, and WTI traded up about 0.3% at $57.57. Both remain well short of three-month highs, however.

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