Here is the problem with OPEC -- they're too optimistic about demand.
At this time last year, they forecast world oil demand would rise to 104.36 million barrels per day this year. It was in stark contrast to the IEA at 102.78 mbpd and EIA at 102.34 mbpd.
Skip ahead to now:
- OPEC 102.8 mbpd
- IEA 101.9 mbpd
- EIA 102.9 mbpd
There is some wiggle room there around condensate classification but what stands out is that OPEC was way too optimistic and that's in a global economy that was better than expected this year.
For next year, OPEC sees 1.54 million bpd of demand growth while others are around 900k-1200k bpd. What's particularly worrisome is that supply growth is likely to exceed 900k bpd given increases in the US, Canada, Guyana and Argentina.
Add it up and you have more supply than demand despite around 3 million barrels of oil held off the market by OPEC. So what can they do? Cut more? Keep production at these levels and hope growth elsewhere undershoots?
At some point you need a different tactic.
Now maybe they hold their breath and hope for Trump or Netanyahu to take 2 million Iranian barrels out of the equation but barring that, their hand looks played out. In addition, the UAE is itching to release more barrels into the market due to large investments.
So there is a very real threat that OPEC decides to fight for market share instead and drive others to curtail barrels and investment. That would drive prices much lower in the short term and I highlighted technical reasons why on Monday.
