Four more years of cheap oil: Opec

Opec's leaders arrive for a news conference after their meeting.
Opec's leaders arrive for a news conference after their meeting.PHOTO: REUTERS

VIENNA (AFP) - The Opec oil cartel sees only a gradual improvement in the global crude market, with prices recovering to above US$70 a barrel after four years, according to a report released on Wednesday.

With the global benchmark oil price touching an 11-year low of US$36.04 on Monday, the cartel which produces a third of the world's crude said that it foresees 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".

The Organisation of the Petroleum Exporting Countries, in its annual World Oil Outlook report, bases its reference scenario on US$70.70 for a barrel of crude in 2020 and US$95 in 2040.

Those projections represent a sharp drop in market value compared to last year's report, which predicted a nominal price of US$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 per cent.

Led by Saudi Arabia, the cartel instead aimed to preserve its market shares and push out growing competition from higher-cost shale rock producers in the United States.

Opec nations, which are highly dependent on oil for government revenues, may be in for a longer haul than they had bargained for initially.

The report sees shale oil production only starting to "plateau" at 5.6 million barrels per day by 2025 and then decline.

And low oil prices are only leading to 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," noted the cartel, which is headquartered in Vienna.

It projected the world's total crude demand to hit 97.4 million barrels per day by the end of the decade, an increase of 500,000 barrels per day compared to 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 still remain below current production levels.

The cartel sees demand for its output reaching 30.7 million barrels per day by 2020, an increase of 1.7 million barrels compared to last year's projections. It is currently pumping 32 million barrels a day.

The cartel said it expected its current market share to increase by four points to 37 per cent by 2040.

For trends in the global energy market, Opec sees the developing world accounting for 63 per cent 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 per cent of world demand.

Meanwhile, although wind and solar power are set to grow at the fastest rates, their overall market reach will only be around 4 per cent in 15 years from now, according to Opec.