(Corrects to 0.5-1 million bpd from 1-1.5 million bpd in paragraph 4)
By Emily Chow and Isabel Kua
SINGAPORE (Reuters) -Global oil stocks are set to rise next year amid weakening demand and a stronger U.S. dollar, executives at an oil conference said on Monday, adding that OPEC will have to cut output to reduce supply if they want prices to remain supported.
Oil prices climbed past $100 a barrel after Russia, the world's largest exporter of crude and fuels, invaded Ukraine in February. But prices have come off their peaks by nearly 40% amid fears that an economic slowdown would weaken demand.
Brent crude and U.S. West Texas Intermediate (WTI) prices slid to eight-month lows on Monday, last trading around $85 and $78, respectively, weighed by a stronger U.S. dollar and concerns that rising interest rates will tip major economies into recession and cut demand for oil. [O/R]
OPEC would need to make oil cuts of 0.5-1 million barrels per day to keep Brent prices above $90, said Gary Ross, chief executive of Black Gold Investors LLC, who also expects oil inventories to continue building in the first quarter despite Russia's declining oil output.
"We could be in contango in the first quarter if OPEC doesn't cut, so if they want to see prices at $90 on their balance, they're going to have to cut," Ross said.
Others agreed that stockbuilds will cap prices though fears will rise when European sanctions go into effect on Dec. 5.
A European Union embargo on Russian crude and oil products over the next few months could also tighten supplies and drive prices higher, although G7 nations are hoping to minimise supply disruption by implementing a price cap mechanism.
"I think inventories will rise next year as demand slows down and more production comes in ... but it all depends on whether Russian oil flows or not. That's the elephant in the room," Fereidun Fesharaki, founder and chairman of energy consultancy FGE, told Reuters on the sidelines of the conference, as bans on Russian oil loom.
A successful revival of the Iran nuclear deal will also lead to an inventory build-up "in a big way," he added, which will lead to production cuts by OPEC+, or the Organization of the Petroleum Exporting Countries and its allies.
"Oil's near-term price outlook all (has) to do with sentiment, signals from China and fear about the future. But when we get to Dec. 5, if Russian oil gets shut in, prices will be $120 or more."
INCREASING CHINESE DEMAND
Refiners in China, the world's largest crude importer, however, expect Beijing to release up to 15 million tonnes worth of oil product export quotas for the rest of the year to support sagging exports. Such a move would add to global supplies and depress fuel prices but could support China's crude demand.
At least three Chinese state oil refineries and a privately run mega refiner are considering increasing runs by up to 10% in October from September, eyeing stronger demand and a possible surge in fourth-quarter fuel exports.
"There's been a push by the refiners, the state-owned companies to export more products ... in an effort I think to try and increase exports and help support the yuan and trade balance," said Black Gold Investors' Ross.
He added, however, that it would be difficult for Chinese refiners to achieve 15 million tonnes of exports by the year-end "because it's right around the corner".
"I think that they'll export quite a bit less than that, and it's unclear at this stage, but it doesn't look like the quotas will be carried over the next year."