The Organization of the Petroleum Exporting Countries said global demand for crude from its members, including Saudi Arabia, Iraq and Iran, will be less than previously thought in 2016 due to competing non-OPEC supply. OPEC supply will likely exceed demand by about 760,000 barrels per day, up from 720,000 bpd implied earlier, it said.
The announcement came as U.S. oil prices fell over 3 percent on Monday on concerns a six-week market recovery has gone beyond fundamentals, as U.S. crude stockpiles continue to mount and Iran maintains little interest in a global production freeze.
U.S. crude settled at $37.18 a barrel, down $1.32, or 3.43 percent. It hit a three-month high of $39.02 on Friday, surging from a 12-year low of $26.05 a month earlier.
Brent was down 73 cents, or 1.81 percent, at $39.66 barrel. The global crude benchmark fell to a 2003 low of $27.10 in late January.
The oil cartel’s crude demand forecast was revised down by 100,000 barrels per day for the full-year, slightly lower than its estimate last month, according to a report released Monday.
“In 2016, demand for OPEC crude is expected to stand at 31.5 million barrels per day, 0.1 mb/d, lower than last month, and representing an increase of 1.8 mb/d over the previous year.”
It said overall demand for oil, including sources outside OPEC, will increase by 1.25 million barrels per day, as it had said in February. However it mentioned that it considered some upward revisions to demand in “Other Asia, Asia-Pacific and Europe due to better-than-expected data.”
However, OPEC sees “considerable uncertainty for 2016” in Europe. Possible economic improvements combined with low oil prices in Europe could continue to support demand in the region. OPEC explained that “unsolved budget deficits in several countries — and policies aimed at increasing fuel taxation — pose substantial downside risks.”
It added that it lowered its demand forecast for Latin America and countries in the former Soviet Union on the “weaker-than-expected oil demand data and a slower economic outlook.” In particular, OPEC said it now forecasts a “larger than expected contraction in 2016” for the economies of Brazil and Russia.
The oil cartel also continues to see strong demand in the U.S. on preliminary data in the first couple months of 2016. OPEC expects “strong growth in gasoline and jet fuel requirements that is more than offset by sluggish distillate demand (mainly as a result of the overall mild winter).”
According to its latest monthly report, the oil cartel still expects non-OPEC oil supply to decline by 700,000 barrels a day in 2016.
Meanwhile, Market intelligence firm Genscape reported an inventory build of 585,854 barrels in Cushing, Oklahoma, taking the delivery hub for U.S. crude futures closer to capacity, traders who saw the data said.
Russia said OPEC’s meeting on a production freeze with other key oil producers like itself will probably be held in Doha in next month. It said Iran supports the plan, although Tehran was keen to restore its crude exports first to pre-sanction levels.
Investment bank Morgan Stanley predicted a $25-$45 trading range for U.S. crude in an oversupplied but volatile market, concurring with several analysts’ views.
“We feel that the bulk of this stronger than expected 5-6 week price advance has been seen and that prices will be shifting into a near term consolidation phase,” said Jim Ritterbusch of Chicago energy consultancy Ritterbusch & Associates.
Monday’s price tumble came after last week’s rally of 7 percent in U.S. crude, which was up for a fourth straight week. Brent gained 4 percent last week, up for a third week in a row.
Some analysts expect a more bearish supply-demand picture when the U.S. government issues weekly oil data on Wednesday. Last week’s report showed a crude build of nearly 4 million barrels to above 521 million barrels, the fourth straight week of growing to record highs.
“I think as we approach $40 for WTI and Brent, the market will not like a net build of more than 2 million barrels this week,” said Scott Shelton, energy broker at ICAP in Durham, North Carolina.
Money managers, including hedge funds, raised their bullish bets on U.S. crude for a third week in a row to November highs but cut net long positions in Brent.
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