OPEC Downgrades Oil Price Forecast, Says Demand Could Peak Within 15 Years

OPEC now says crude prices will reach $60 per barrel by 2020

Despite repeatedly stating that the market has rebalanced, thereby heralding improved prices, the Organization of the Petroleum Exporting Countries (OPEC) in its annual World Oil Outlook now says crude prices will reach $60 per barrel by 2020 – a significant drop from its 2015 prediction of a reference basket price of $80.

The cartel also assumes that crude will average $40 per barrel in 2016 and has raised its projected price by $5 per barrel in each of the years through 2020.

The Outlook foresees a significant increase in global demand, to 95.3 million barrels per day (bpd) next year, or an increase of 300,000 bpd from last year's forecast; demand will escalate in subsequent years to 99.20 million bpd in 2021, or 1 million more than OPEC projected in 2015.

Although the report conceded that economic slowdowns in China and Latin America have impacted growth, this has been offset by the performance of developing countries, and therefore OPEC pegs global economic growth at 3.4 percent annually for 2015 to 2021, only a minor drop from the 3.6 percent it forecast last year for 2014 to 2020.

The Outlook calls the upward revision of demand "the result of a lower medium-term oil price assumption, which is expected to have a stronger influence than assumptions of lower medium-term economic growth and expanded energy efficiency policies."

Mohammed Barkindo, secretary general for OPEC,wrote in the Outlook's forward, "While the recent oil market environment has been one of oversupply, it is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future."

As for tight oil (including U.S. shale), the Outlook predicts global output will reach 4.55 million bpd by 2020 and peak at 6.73 million bpd by 2030 thanks to the participation of Argentina and Russia; last year, the Outlook's estimates were 5.19 million bpd by 2020 and 5.61 million bpd by 2030.

One of the report's more provocative declarations is that oil demand might peak within 15 years due to the rise of alternative fuel cars and more aggressive climate targets - despite the conventional automobile fleet targeted to almost double in 20 years as emerging economies develop.

But OPEC plays it safe by adding, "The uncertainties associated with energy and environmental policies at both national and international levels cloud the outlook for energy demand and supply, especially in the long term."

OPEC's peak demand prognostication is shared by Royal Dutch Shell, which said last week that oil consumption might stop growing within five to 15 years; however, Khalid al-Falih, energy minister for Saudi Arabia and de facto leader of OPEC, disagrees and stated last week that oil and gas demand will continue to grow despite increased efforts to curb climate change (and presumably despite the Saudis racing to reduce its dependency on oil revenues by diversifying its economy).

In January, OPEC characterized 2016 as the year "when the rebalancing process starts; after seven straight years of phenomenal non-OPEC supply growth, often greater than 2 million bpd, 2016 is set to see output decline as the effects of deep capex cuts start to feed through."