OPEC published extracts on Friday of its upcoming World Oil Outlook. All things considered, the group’s oil price assumptions ($70 in 2020 and $95 in 2040) are pretty optimistic.
OPEC seems to believe the period of low oil prices will be short lived and self correcting. With a preponderance of bearish factors including WTI hovering around $35/bbl Friday, an oversupplied global oil market, new Iranian barrels set to further widen the glut next year, and ineffectual quotas, it is a bit of a surprise to see that such high long-term expectations rule the group’s thinking.
OPEC’s Rose-Colored Glasses
The 13-member group said it now assumes the price of the reference basket of crude oil produced by its members would be $70/bbl in 2020, increasing to $95/bbl by 2040. In other words, OPEC expects the price to double by 2020 and triple by 2040.
This does represent a reduction from last year’s price estimates, when OPEC assumed prices for its basket at $95.40/bbl in 2020, and $101.60/bbl in 2040. But OPEC’s long term view is only being reduced by 17% on average compared to the 67% fall in spot oil prices over the same time. The back end of OPEC’s “curve” is holding up much better than the front end suggests it should, underscoring an optimistic belief among the group’s analysts.
These assumptions are made even as no OPEC member shows signs of slowing production, Iran prepares to add 500,000 – 1 M/bpd to the current OPEC output level of about 31.5 M/bpd, and as Russia produces full throttle at post-Soviet record highs of around 10.7 M/bpd.
Because these are assumptions, rather than a forecast, OPEC does not articulate the basis for this recovery. But we would not be surprised if OPEC is betting on non-group supply (read: NAM tight oil) to decline at such a steep rate that it offsets supply growth from its members (and Russia).
OPEC sees its production expanding by 10 M/bpd to a level of 40.7 M/bpd by 2040. Conversely, non-OPEC output is seen rising from 56.5 M/bpd in 2014 to around 60 M/bpd in 2020- that’s a downward revision of 1 M/bpd versus OPEC’s WOO report last year. By 2040, non-OPEC liquids supply falls below 60 M/bpd.
Other Highlights Of The Preview
Global energy demand is set to increase by almost 50% in the period to 2040, with the overall energy mix continuing to be led by fossil fuels at almost 78%.
Combined, oil and gas are expected to supply around 53% of the global energy demand by 2040.
Medium-term oil demand is revised upward, compared to the WOO 2014, rising above 97 M/bpd by 2020.
Oil demand is projected to be at 110 mb/d by 2040.
Non-OPEC liquids supply increases from 56.5 M/bpd in 2014 to around 60 M/bpd in 2020, a downward revision of 1 M/bpd compared to the WOO 2014. By 2040, non-OPEC liquids supply falls below 60 M/bpd.
OPEC crude expands by 10 M/bpd to a level of 40.7 M/bpd by 2040 – an increase of 1 M/bpd compared with last year’s publication.
The full text of OPEC’s WOO will be released next Wednesday, December 23.