OPEC expects oil demand to rise in mid-term

OPEC has made “working assumptions” that there will be an annual increase of $5 per barrel in oil prices annually, bringing oil prices to $80 per barrel by 2020, and reaching nearly $123 per barrel by 2030, OPEC said in its World Oil Outlook report released on Wednesday.

While the average price of the OPEC Reference Basket during the first half of 2014 was over $100 a barrel, it dropped to less than $60 a barrel in December 2014 and has averaged close to $53 a barrel in the first nine months of 2015.

OPEC predicted oil prices could reach up to $95 per barrel in 2040 as the “need to develop oil production in more expensive areas will drive long-term oil prices higher”.

Global demand for OPEC’s crude will be lower in 2020 than next year as supply from rivals proves more resilient than expected, potentially fuelling a debate on the merits of its strategy to let prices fall to hurt other producers. The expected demand from OPEC in 2020 is about 1 million bpd less than it is now producing.

But that rate of growth trails behind expected economic growth, which itself is expected to be “below potential” in the medium term, with the result that Opec foresees little actual growth in demand for its members’ crude through 2020.

For the long-term, OPEC forecasts oil demand increasing by more than 18 million barrels per day between 2014 and 2040, reaching 109.8 million barrels per day at the end of the forecast period.

“The impact of the recent oil price decline on demand is most visible in the short term”, OPEC Secretary-General Abdullah al-Badri wrote in the foreword to the report. Then, in the 20-year period between 2020 and 2040, OPEC crude is expected to expand by 10 million barrels per day to a level of 40.7 million barrels per day in 2040. “The removal of subsidies and price controls on petroleum products in some countries and ongoing efficiency improvements will all likely continue restricting oil demand growth”. Oil demand in developing countries is anticipated to increase by 6.1 million barrels per day between 2014 and 2020, reaching 46.4 million barrels per day. As recently as 2013, OPEC assumed tight oil would have no impact outside North America.

Energy demand is expected to increase by 47 percent to 399 million barrels oil equivalent per day (mboe/d) by 2040, according to OPEC.

OPEC crude supply is expected to increase to 40.7 mb/d in 2040.

The report supports the view that OPEC’s market share will rise in the long run as rival supply growth fades.

Price declines were exacerbated by the decision a year ago by OPEC, the 12-member producer group led by Saudi Arabia, not to cut production.