OPEC revised its market expectations this week and forecast that demand for its crude oil will rise in the next three years. OPEC now forecasts that demand for its crude will reach 33.70 million barrels per day in 2019, up 1 million barrels from 2016. This indicates that OPEC believes that market conditions have become more favorable. In the 2015 edition of its World Oil Outlook, OPEC had actually expected crude demand to fall to 30.70 million barrels by 2020. It therefore appears that OPEC’s strategy of allowing the value of oil to fall, which in turn increased demand, may have been a better long-term strategy than previously thought.
What is interesting to note is that OPEC demand is only expected in 2019 to be about 300,000 barrels per day more than the cartel is pumping now. OPEC expects non-OPEC supply to continue falling in 2017 before rising again in 2021. Unfortunately, OPEC still does not predict a return to higher prices. As of now, the Report assumes oil will be $65 per barrel in 2021, down from $80 a barrel in 2020 OPEC predicted in last year’s report.
Significantly, global tight oil output is not predicted to reach 4.55 million bpd by 2020, and peak at 6.73 million bpd in 2030 as Argentina and Russia join North American producers. "North America tight crude remains a major source of non-OPEC supply growth until 2030," the report said. OPEC revised up its 2040 North American tight crude forecast by 1.20 million bpd, citing "reduced costs and productivity improvements".
OPEC increased its medium-term world oil demand forecast, expecting oil use to reach 99.20 million bpd by 2021 - 1 million bpd more than in last year's report.
Unfortunately, significant hurdles remain in order to enact an OPEC freeze agreement. OPEC once again pumped record volume last month, and there has been significant in-fighting over who will suffer the most from production freezes. At a time where North America appears ready to pounce, these obstacles create problems. Yet, it is net positive that OPEC now forecasts higher demand and may increase the probability of a freeze.
By: Ty Chapman
Five Star Metals, Inc.
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