OPEC published an outlook that suggests a shrinking oil market and lower oil demand growth. The organisation is being challenged by increased US shale oil production output and is curbing its own output to keep prices from dropping too low.
The Organization of Petroleum Exporting Countries (OPEC) published its outlook for the world’s oil market on Tuesday, with medium to long-term projections.
“This year’s WOO [World Oil Outlook] once again highlights the industry’s challenges, as well as its opportunities, and underscores the vital requirements for a serious and thorough evaluation of all the factors, drivers and risks to our common long-term energy future,” OPEC Secretary General Mohammad Sanusi Barkindo wrote in the foreword to the 2019 OPEC WOO report.
OPEC countries include Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, United Arab Emirates and Venezuela.
The organisation emphasised: “The Outlook is not about making predictions. The WOO should be viewed as a helpful and insightful reference tool, one that underscores the Organization’s commitment to data transparency.”
Despite OPEC and its allies agreeing to cut output in December 2018 by 1.2 million barrels a day to keep the price of crude oil afloat, prices have fallen. The Economist noted that fears of a recession sapping demand has caused a slump in prices from $75 in April to around $60.
While a drone attack in September on Saudi Arabia’s biggest processing facility caused a spike in oil prices, the increase did not prove to be permanent.
Reuters reported OPEC as saying it will reduce its oil output in the next five years as output of US shale and other rival sources increases. OPEC production of crude oil and other liquids was at 35 million barrels per day (bpd) in 2019. The group said in the WOO that its production is expected to go down to 32.8 million bpd by 2024.
S&P Global Platts reported OPEC as saying its share of the oil market will contract to 31 percent in 2024, from 37 percent in 2018, as US shale oil supplies increase.
According to WOO, US shale oil production will go from 10.2 million bpd in 2018 to 16.9 bpd in 2024. Yet the report also forecasts a drop back to 14.5 million bpd in 2040 after peaking in 2029 at 17.4 million bpd.
OPEC has been in a partnership with Russia and nine other non-OPEC countries for almost three years. Referred to as the OPEC+, these countries are Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
OPEC and its partners have been cutting back on production, and there is speculation, S&P Global Platts reported, that “the coalition could have to cut further when it next meets on December 5-6 in Vienna to prevent another slump in prices”.
OPEC Secretary General Barkindo noted in the foreword: “There is no doubt this historic cooperation between OPEC and non-OPEC producing nations will be vital in the years and decades ahead.''
Whether it’s of OPEC or non-OPEC origin, the WOO stated: “Oil is expected to remain the fuel with the largest share in the energy mix throughout the forecast period to 2040.”
The WOO also reported: “Natural gas witnesses the largest demand growth in absolute terms, and renewables the largest growth in percentage terms.”
Authors of the WOO said that while OPEC is primarily focused on oil and its byproducts, the organisation “remains fully engaged and supportive of the Paris Agreement on climate change”, the environmental accord that US President Donald Trump has recently announced the US will pull out of.