AFP on Business Day Live
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VIENNA — The Organisation of the Petroleum Exporting Countries (Opec) expects only a gradual improvement in the global crude market, with prices recovering to above $70 per barrel after four years, according to a report released on Wednesday.
With the global benchmark oil price touching an 11-year low of $36.04 on Monday, the cartel — whose members produce a third of the world’s crude — said it foresaw a "gradual improvement in market conditions as growing demand and slower than previously expected non-Opec supply growth eliminate the existing oversupply and lead to a more balanced market".
Opec, in its annual World Oil Outlook report, bases its reference scenario on $70.70 for a barrel of crude in 2020 and $95 in 2040.
Those projections represent a sharp drop in market value compared with last year’s report, which predicted a nominal price of $110 for the rest of this decade.
The oil market has been rife with drama over the past year-and-a-half as Opec abandoned its policy of cutting production to support prices, with the price of a barrel of crude plunging more than 60%.
Led by Saudi Arabia, the cartel instead aimed to preserve its market share and push out growing competition from higher-cost shale rock producers in the US.
Opec nations, which are highly dependent on oil for government revenue, may be in for a longer haul than they had bargained for initially.
The report says shale oil production will only start to "plateau" at 5.6-million barrels a day by 2025, before falling.
And low oil prices are leading to only a short-term boost in demand.
"The impact of the recent oil price decline on demand is most visible in the short term. It then drops away over the medium term," said the cartel, which is headquartered in Vienna.
It projected the world’s total crude demand would hit 97.4-million barrels a day by the end of the decade, an increase of 500,000 barrels a day compared with its forecast from last year.
And while demand for Opec oil is also set to increase more than previously forecast over the next five years, it will remain below current production levels.
The cartel sees demand for its output reaching 30.7-million barrels a day by 2020, an increase of 1.7-million barrels compared with last year’s projections. It is pumping 32-million barrels a day at the moment.
The cartel said it expected its market share to increase by four points to 37% by 2040.
For trends in the global energy market, Opec sees the developing world accounting for 63% of the total fuel consumption, overtaking industrialised countries of the Organisation for Economic Cooperation and Development.
Natural gas is expected to replace oil and coal as the fuel with the largest share of global energy use by 2040, making up close to 28% of world demand.
Meanwhile, although wind and solar power are set to grow at the fastest rates, their overall market reach would be only about 4% in 15 years from now, Opec said.