Commodities: Oil prices and OPEC’s meeting

Oil prices fell on Thursday. The price of Brent crude futures decreased by 61 cents to $60.20 a barrel. It was the third session in a row when Brent crude futures experienced problems. The price of West Texas Intermediate (WTI) futures fell by 37 cents to $55.38.

There are many issues which are taking a toll on the oil sector. The ongoing trade war between the U.S. and China is one of them. However, OPEC has problems connected with its member states. The Saudi and Arabian energy ministers emphasized the need to comply with the agreement. The Energy Minister of Saudi Arabia Prince Abdulaziz bin Salman underlined the importance of cooperation. He said that no matter how much oil this or that country is producing, it has to follow the oil cuts agreed by the OPEC.

It is worth mentioning that OPEC and its allies agreed to reduce the daily production back in December 2018. According to this agreement, countries which signed this agreement will reduce the oil production from January 2019. The goal of this deal was to cut production by 1.2 million barrels of oil per day.

Nevertheless, signing this agreement proved insufficient to solve this problem. For example, last month, Iraq was pumping 4.80 million barrels per day when it was supposed to pump only 4.65 million barrels. Moreover, Iraq is not alone when it comes to failing to comply with the agreement. Oil production in Nigeria was 1.84 million barrels per day instead of 1.65 million barrels.

The oil demand forecast for 2020

On Thursday, OPEC+ ministers will gather in Abu Dhabi for a market monitoring committee meeting. The formal OPEC+ meeting will take place in December.

On Wednesday, OPEC released a monthly report. According to this report, oil demand will grow by 1.08 million barrels per day in 2020. It means that in comparison with the previous forecast this amount decreased by 60,000 barrels per day. However, the surplus would remain in place.

Another problem for the OPEC and its allies is that the global economy is slowing down. This will negatively affect the oil sector. The report prepared by OPEC highlighted the problems connected with the global economy. The economy will grow by 3.1% in 2020. They reduced it from 3.2% to 3.1%.

The good news for the OPEC is that oil inventories decreased in industrialized economies in July. It means that the chance of a possible oil glut is not high. However, oils stocks surpassed the five-year average in July.

According to the report, the demand for OPEC crude will be 29.40 million barrels per day in 2020. It means that demand for the OPEC crude will decrease by 1.2 million barrels in comparison with 2019.

The leading oil-producing country in this organization is Saudi Arabia. In August, the country increased daily production by 200,000 BPD to 9.789 million BPD. Nevertheless, the de facto leader of OPEC strictly complies with the agreement. Its daily quota is 10.311 BPD.

The challenge for the organization is that even production level, which was in August is enough to surpass the demand for oil in 2020. It means that OPEC should take an additional step to address this problem.