-Raises Nominal Oil Price Range Estimate Over Next Decade To $100-$120
By Brai Odion-Esene
WASHINGTON (MNI) – OPEC said growing concerns about immediate
prospects for global economic growth has caused the oil power to revise
down its projection for oil demand in the medium-term, although it
raised its estimate of nominal oil prices over the next several years,
according to a report released Thursday.
“The uncertainties regarding the prospects for the world’s major
economies, as well as the potential adverse impacts of the enduring
weaknesses of the international financial system, evidently constitute
significant downside risk for oil markets,” OPEC Secretary General Salem
el-Badri wrote in the foreword to the 2012 World Oil Outlook.
OPEC slashed its growth estimate for the global economy to 3.1%
this year compared to its 4.1% expectation in last year’s report. The
forecast for 2013 was cut to 3.1% from 3.8%.
“Risks stemming from the Euro-zone have heightened as a result of
expanding public deficits, weakening economic growth, deleveraging in
the banking system, as well as policy indecisiveness” el-Badri said, and
noted that while the U.S. appears more resilient, its economic
indicators throughout the year have been mixed.
“And in developing countries, economic growth is slowing, feeding
concerns as to whether the difficulties in industrialized nations will
spill over into their economies,” he added.
However, el-Badri said possible upside potential also exists and
could have a sizable impact on oil prices and investment needs.
The reference case used by the OPEC report to make its demand and
supply projections assumes a nominal price that averages $100 a barrel
over the medium term before rising with inflation to reach $120 by 2025.
Prices are forecast to reach $155 by 2035.
In last year’s report, the projection was for a nominal oil price
in the range of $85 to $95 a barrel, with the expectation that it would
reach $133 by 2035.
“The key basis for making such assumptions for the Reference Case’s
medium- to long-term outlook remains the perception of how the costs of
supplying the marginal barrel might evolve, as well as taking into
account the effects of depletion, an increasing supply of oil from more
remote and harsher environments, and the impacts of stricter
environmental protection on costs,” the OPEC report said.
“The extent, to which these costs rise, is tempered by the impacts
of continued technological developments,” it added.
In the medium term, OPEC predicts uncertainty surrounding the
global economy to have a dampening impact on demand, and it revised down
its 2013 world oil demand projection by 1.2 million barrels a day to
89.5 million bpd.
The world demand forecast this year was lowered to 88.7 million bpd
from 89.5 million in the 2011 report. Demand is expected to hit 92.9
million bpd by 2016, a downward revision of over 1 million bpd.
Developing countries, expected to be the main drivers of oil demand
growth next year, are collectively projected to consume less oil next
year — 38.5 million bpd compared to 39.4 million in last year’s report.
China’s thirst for oil is expected to be 10.2 million bpd next
year, a downward revision from 10.6 million initially predicted by
OPEC.
Perhaps of concern from a supply standpoint, oil consumption by
OPEC nations is projected to rise steadily, going from 8.5 million bpd
in 2012 to 8.6 million in 2013, and rising further to 8.8 million bpd by
2014. This could mean a steady reduction in the amount of crude exported
to consumer nations, as more gets set aside to meet domestic demand.
In its long-term projections for oil demand, OPEC estimates demand
will increase by over 20 million bpd for 20102035, reaching just under
107.3 million by 2035.
“Fully 87% of the increase in global demand is in developing Asia,
where demand reaches almost 90% of that of the OECD by 2035,” OPEC said.
The report added that the transportation sector will continue to
dominate demand growth. “The growing numbers of automobile users in
large emerging economies, such as China and India, is a significant
source for future demand growth,” it said.
In contrast to its expectation for a reduced appetite for oil, OPEC
maintained its projections for non-OPEC oil supply, forecasting growth
of 54.1 million barrels per day in 2013.
Total non-OPEC supply is expected to increase steadily over the
medium-term, rising by over 4 million bpd over the 20112016 period.
“The key sources of supply driving this growth are rising levels of
shale oil from the U.S., Canadian oil sands, and crude oil from the
Caspian and Brazil,” OPEC said.
With regard to shale oil in particular, OPEC is predicting “a rise
in importance,” with an estimated 2 million bpd and 3 million barrels
assumed to emerge in 2020 and 2035, respectively.
These increases compensate for expected declines elsewhere, with
the combined supply from OECD Europe and Mexico projected to fall by
close to 1 million bpd over this medium-term period.
Given the growth in oil supply from non-OPEC producers, the report
said the demand for OPEC crude will rise slowly.
OPEC supply is projected to go from 31.1 million bpd in 2012 to
30.1 million bpd in 2013, and 29.6 million bpd in 2014.
“These supply projections, along with those already outlined for
demand, imply that the amount of OPEC crude required over the
medium-term will stay essentially flat,” the report said; adding, OPEC
crude oil spare capacity is expected to exceed 5 million bpd as early as
2013 to 2014.
** MNI Washington Bureau: 202-371-2121 **
-email: besene@mni-news.com
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