OPEC’s Market Share May Shrink By 2020

But it’s going to take a quarter-century to get there.

On Wednesday, OPEC released a forecast that showed demand for its crude oil would be lower 2020 than in 2016 as rival producers prove more resilient than expected in a low price environment.

Expectations of a market recovery in the latest report from OPEC helped oil prices rebound in Wednesday trading, though Brent is still below $40 per barrel.

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.

With oil’s 1-1/2-year slide worsening for most of this month, Wall Street’s performance has been closely tied to the price of crude, raising some concerns that weakness in the commodity would derail typical year-end strength in stocks.

OPEC has long predicted that the supply of oil from producers outside of the OPEC group would contract next year, just as world oil demand rises, and reiterated that prediction in the WOO. “It then drops away over the medium term”.

OPEC is divided over the merits of its 2014 strategy to protect its market share, which was largely led by Saudi Arabia.

“With WTI now pretty much at parity with Brent and Brent being the global oil benchmark, that really indicates a massive oversupply situation in the world”, Victor Shum, a Singapore-based vice president at consultancy IHS Inc., told Bloomberg News.

But that means demand for Opec oil over the period is actually expected to decrease slightly, from an estimated 31 million bpd to 30.7 million bpd in 2020.

OPEC initially downplayed the impact of shale oil, although its annual outlook in 2012 acknowledged for the first time that the effect could be “significant”. In a change of tack from previous reports, OPEC now says many projects work at lower prices too.

“Correspondingly, nominal prices reach $80/b in 2020, rising to nearly $123/b by 2030 and more than $160/b by 2040”.

Total gasoline inventories increased by 1.1 million barrels last week, according to the EIA, and dropped into the lower half of the five-year average range.

The gains came after the US Department of Energy reported that US crude inventories fell 5.9 million barrels for the week ending December 18.

But factors including slower economic growth, the limited share of the crude cost in pump prices and the falling value of some domestic currencies against the US dollar will limit the demand response to lower crude prices, OPEC said.

The general outlook for oil is for low prices to remain as production stays near record levels until operators are forced to shut down due to losses.