The Organisation of the Petroleum Exporting Countries, aka Opec, said that it expects oil prices to begin rallying next year and to steadily recover over the remainder of the decade to reach US$70 per barrel by 2020.
In its latest World Oil Outlook, the producers’ group forecast that in real terms would cost US$90 by the year 2040. Although oversupply and sluggish demand has cut the current price to less than US$37 a barrel, the projected future prices are still below the latest peak of US$114 per barrel seen as recently as June 2014.
The subsequent fall in price was exacerbated by the decision by Opec’s 12 members, led by Saudi Arabia, to maintain production levels.
According to its latest forecast, higher exploration costs should soon begin to drive prices higher. However, Opec also acknowledges that its share of the oil market, which has already declined to around 30% from 50% in the 1970s, is likely to shrink further as rival producers prove resilient.
The US, in particular, has grown steadily less reliant on imports as it has stepped up the extraction of shale oil at home. Opec believes that with prices now at an 11-year low, some US shale oil projects could be abandoned on put on hold.
The forecast highlighted weaker global economic growth, particularly in developing economies, as another factor contributing to low prices. It highlighted China, where the “economy seems to be maturing and growth is decelerating faster than previously expected”.
Longer-term, population and economic growth is expected to see demand for energy rise by almost a half by 2040, helping to lift oil prices.
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