ABU DHABI—The Organization of the Petroleum Exporting Countries and its oil-producing allies are under considerable pressure ahead of a technical meeting Thursday, as fresh forecasts point to declining global demand growth for oil and a potential world-wide economic slowdown. The group will gather to discuss future oil production—and its margin for error has rarely been thinner. That is especially true for de facto OPEC leader Saudi Arabia, which needs higher crude prices to achieve an optimal valuation for national energy giant Saudi Arabian Oil Co., known as Aramco, ahead of its long-awaited initial public offering.
OPEC and its allies including Russia agreed in June to extend crude output cuts into their fourth year. However, prices have remained weak and have fallen 20% over the last 12 months. This week’s fresh downgrades to oil demand growth estimates by the International Energy Agency and OPEC have added to concerns over a slowing global economy. “There is a worry among some members that the demand picture is not very positive and deeper cuts may be needed,” said an OPEC delegate from the Persian Gulf region. He asked not to be named, and will attend Thursday’s meeting.
What does the road to an IPO look like for the world’s most profitable company? After repeated delays, Saudi Aramco has revived plans for what would be the biggest-ever IPO. But hurdles remain for the state-owned energy company. Photo illustration: Adele Morgan
“It will be difficult to convince the entire group that they need to cut more, even if the Gulf bloc is willing to do it,” the delegate added. OPEC lowered its 2019 oil demand growth forecast for the second month in a row Wednesday, the day after the IEA confirmed it would reduce its own estimate for the fourth time in five months. Both bodies cited slowing global economic growth and the U.S.-China trade war. Saudi Arabia’s plans for an IPO of the world’s most profitable company are expected to loom large over Thursday’s meeting. The oil-demand forecast revisions followed remarks from Saudi officials and Aramco itself suggesting that a two-stage domestic IPO of Aramco will come “very soon.” The downgrades will do little to boost crude prices to a level that will achieve Crown Prince
Mohammed bin Salman
’s hoped-for $2 trillion valuation. Saudi energy minister Khalid al-Falih was replaced by the kingdom Sunday, less than a week after he was removed as chairman of Aramco. Mr. Falih had publicly supported listing Aramco, but also attempted to slow and shrink the scope of the IPO, due to anxieties over falling oil prices and the prospect of a global recession, Aramco executives and Saudi officials said. Still, the prospect of Saudi Arabia pressuring its OPEC peers to engage in deeper production cuts is by no means guaranteed. “It would be wrong on my end to pre-empt the meeting,” said Saudi Arabia’s new energy minister, Prince Abdulaziz bin Salman, at the World Energy Congress in Abu Dhabi on Monday. OPEC’s report showed a decline in oil inventories in the Organization for Economic Cooperation and Development countries, leading some delegates to suggest that OPEC may leave cuts unchanged Thursday, given the difficulty of building consensus for deeper curtailments. “Inventories are dropping, mainly in the United States, but we are still above the five-year average, so clearly there is more to be done,” said another Gulfi delegate. “I think for now any talk of a deeper cut will be premature and I don’t see countries like Russia or Iran agreeing to cut.” Iranian oil supplies are close to an all-time high, with the country facing crippling U.S. sanctions aimed at driving exports to zero. However, analysts said Tuesday’s departure of John Bolton from the Trump administration has raised the prospect of a thaw in Iranian relations and a glut of Iranian oil entering the market. “The sudden firing of U.S. National Security Advisor John Bolton could be a catalyst for a material de-escalation in the Iran standoff that could bring back around 700,000 Iranian barrels [of oil per day],” possibly with the first three months of 2020, said Helima Croft, global head of commodity strategy at Royal Bank of Canada Capital Markets. —Oliver Griffin contributed to this article. Write to David Hodari at David.Hodari@dowjones.com and Summer Said at email@example.com
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