Even as crude prices rally, the Organization of the Petroleum Exporting Countries (OPEC) Secretary-General thinks that the oil market is adequately supplied.
Following U.S. sanctions on Iran, market investors seem to be pricing in expectations of a supply shortage (Iran being the OPEC's third-largest oil producer). Last week, Brent crude (LCOc1) touched $86.74, the highest since 2014. However, OPEC Secretary-General Mohammad Barkindo indicated, at the Oil & Money conference in London, that oil price upswings are more a result of speculation on supply shortage versus actual fundamentals.
"The market has been reacting to perceptions of a possible supply shortage. The market remains well supplied," he said. "The projections for 2019 clearly show a possible rebuild of stocks," speaking on his outlook for next year.
What’s more, OPEC in a separate analysis projected dampened growth in oil demand for oil in 2019 due to trade wars and emerging markets’ crises/volatility. OPEC now expects oil consumption next year to rise by 1.36 million barrels per day(bpd), 50,000 bpd lower than its last estimate.
OPEC lowered estimates for 2019 demand for its own crude to 31.8 million bpd citing weaker demand and rising supplies outside the group. OPEC's report also said that if it continues to produce at its September rate of 32.76 million bpd (the highest this year so far), it might incur a glut of almost 1 million bpd in 2019 - although this excludes the impact of any substantial reduction in Iranian output.
Barkindo is, however, concerned about spare capacity levels amidst declining investments in the oil industry. Saudi Arabia is reportedly the only OPEC member with substantial spare capacity to leverage - in case demand outstrips supply.