• 4 minutes Will We Ever See 100$+ OIL?
  • 8 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 11 minutes Energy Outlook for Renewables. Pie in the sky or real?
  • 1 hour Iran Loses $130,000,000 Oil Revenue Every Day They Continue Their Games . . . .Opportunity Lost . . . Will Never Get It Back. . . . . LOL .
  • 1 day Iran Captures British Tanker sailing through Straits of Hormuz
  • 15 hours Renewables provided only about 4% of total global energy needs in 2018
  • 6 hours EIA Reports Are Fraudulent : EIA Is Conspiring With Trump To Keep Oil Prices Low
  • 2 days Drone For Drone = War: What is next in the U.S. - Iran the Gulf Episode
  • 1 day Berkeley becomes first U.S. city to ban natural gas in new homes
  • 2 days Today in Energy
  • 34 mins Shale Oil will it self destruct?
  • 19 hours Oil Rises After Iran Says It Seized Foreign Tanker In Gulf
  • 2 hours First limpet mines . . . . now fly a drone at low altitude directly at U.S. Navy ship. Think Iran wanted it taken out ? Maybe ? YES
  • 1 hour N.Y. Governor Signs Climate Bill
  • 2 days LA Solar Power/Storage Contract
  • 3 days Why Natural Gas is Natural
Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Premium Content

OPEC Just Knocked $20 Off Its Oil Price Outlook

OPEC warned in newly released report that oil prices might not rise above $60 per barrel until the end of the decade, in an acknowledgement that an array of bearish forces will conspire to keep a lid on any price rally.

OPEC’s new World Oil Outlook (WOO) offers medium and long-term predictions for the oil market. OPEC’s Reference Basket (ORB) price will average $40 per barrel this year, and the group projects that the price will rise by $5 per barrel each year through the rest of the decade. That only takes ORB prices up to $60 per barrel in 2020.

That is a remarkable prediction from a group of oil-exporting countries, often known for a much more bullish outlook for oil. There are a few reasons that OPEC is more resigned to a “lower for longer” mantra.

OPEC admitted that things have not gone according to plan since it decided to abandon market intervention in November 2014. The group, led by Saudi Arabia, thought that low oil prices would stoke demand and also push out high-cost producers, two predictions that did not play out, at least to the degree that top OPEC officials predicted. “While analysts initially anticipated that lower oil prices would have a positive impact on global economic growth, the reality is that the overall impact has been neutral. Scars from the economic crisis such as high household debt levels, fiscal imbalances and high unemployment, combined with industry investment cuts, have limited the propensity to consume,” OPEC wrote in its WOO report.

U.S. gasoline demand did hit a record high this year, but it took two years of low prices to reach that level and oil consumption lagged behind the huge spike in miles traveled, an indication that fuel efficiency blunted the impact of more driving. Meanwhile, China’s demand has continued to soften even as oil prices languished at record lows.

OPEC also conceded that “the resilience of supply in the lower oil price environment caught the industry by surprise, particularly tight oil in North America. Productivity gains and cost reductions have helped producers maintain output at higher levels than expected and thus delay the slowdown. In addition, the role of financial markets, in particular that of hedging has proven to be an efficient cushioning mechanism.” Related: The Pen Is Mightier Than The Pump: The Danger Of Shorting An OPEC Deal

The U.S. lost 1 million barrels per day in output, falling from a peak of just under 9.7 mb/d in April 2015 to 8.7 mb/d this past summer. The rig count plummeted and companies went out of business, but lenders and capital markets remained open to drillers, preventing a much steeper decline in output. Now, it appears that output may have bottomed out, stabilizing at much higher levels than OPEC predicted. In this year’s WOO, OPEC raised its longer-term estimate for shale production. Last year, it predicted global shale production at 5.61 mb/d by 2030, but this year it raised that figure to 6.73 mb/d, which assumes more output from Russia and Argentina.

All of this has the oil cartel predicting $60 oil by 2020, which is an astounding $20 per barrel less than its forecast from last year. OPEC cautioned that these figures are not its forecast “nor a desired price path for OPEC,” but simply a working assumption. Still, using these assumptions for its reference case is a notable admission that things have not worked out according to plan.

Nevertheless, OPEC remains relatively confident about the long-term. Demand for OPEC oil remains relatively flat over the next decade, “hovering in the range of 33.6-33.8 mb/d between 2019 and 2025. Related: Why $25 NatGas Is Possible This Winter

From that point forward, OPEC crude exhibits steady growth until the end of the projection period when it is anticipated to reach 41 mb/d,” which is roughly 30 percent higher than the demand for OPEC oil today. OPEC also expects to have a 37 percent market share, or 3 percentage points higher than last year’s level.

But those predictions change when factoring in the Paris Climate Change accord. If all the countries that signed onto the agreement actually implement plans to reduce greenhouse gas emissions, OPEC envisions a scenario in which oil demand actually peaks in 2029 at 100.9 mb/d and declines thereafter. This echoes a warning from Royal Dutch Shell, which recently said that demand could peak in the next 5 to 15 years.

As always, projections like those found in OPEC’s new report should be taken with a large grain of salt, but for an oil cartel like OPEC to be releasing relatively bearish figures for oil over the next five years is a bad sign for those hoping for a rally in prices.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play