No one can predict oil prices but it is funny to see how quick sentiment changes. When oil is soaring everyone is predicting new record oil prices. Now with the commodity tanking some are calling for $15 oil. Even, OPEC (which is basically a cartel). is not immune to this hysteria. Case in point….

 

Crude oil prices have recently dropped below $35 a barrel, the lowest price seen in close to two decades. The organization of Oil Exporting Countries (OPEC) believes that crude oil prices will eventually bounce back to close to $95 a barrel, but not until 2040. This sobering assessment of long-term crude oil prices is based on the latest World Oil Outlook report from OPEC.

Crude oil prices
Chart via S&P Capital IQ

More on OPEC’s 2016 World Oil Outlook

The most recent WOO provides the organization’s outlook on supply, demand and prices through 2020 and 2040. The report projects that a barrel of oil will cost around $70 by 2020 and gradually move up to $95 by 2040. This means that even 25 years from now, we will still not be close to the $114 a barrel peak oil price hit in June 2014 before prices collapsed due to oversupply. On Wednesday, a barrel of benchmark Brent crude cost $36.51, a fraction higher than West Texas Intermediate grade oil at $36.47 a barrel.

The decline in crude oil prices has been exacerbated by recent decisions by OPEC, pushed by Saudi Arabia, to not cut production. OPEC’s Secretary General Abdalla Salem El-Badri felt the WOO report was the appropriate venue to claim that OPEC had been a source of stability in volatile times for the oil industry.

“The supply and demand balance in 2015 has been one of oversupply, with stock levels rising to well above the five-year average. Despite this market instability, the organization has continued to be an efficient, reliable and economic supplier of oil,” El-Badri argued in the introduction of the report.

Crude oil prices drop off is mainly related to oversupply

While the huge drop off in crude oil prices is mainly related to oversupply, the demand for oil has actually been relatively strong. Wen considering future demand in its outlook, OPEC projected oil demand would increase to 97.4 million barrels per day by 2020, a boost of 500,000 barrels a day compared to the 2015 WOO crude oil demand projection.

OPEC projected overall demand to move up to 110 million barrels a day by 2040, which is a decrease of close to 1 mb/d from last year’s projections.

The group’s recent decision to cut production to support prices is seen as an effort by Saudi Arabia et al. to retain its market share as shale oil producers in the U.S. and Canada typically have higher production costs than most OPEC members.

Not surprisingly, many rivals have closed down more expensive rigs and cancelled new drilling projects, while most OPEC nations are producing oil at record levels (in fact, above the self-imposed limit of 30 million barrels a day).

The organization believes that the supply of oil from producers ex OPEC will contract next year as global oil demand continues to tick up.

Meanwhile, “The Oil G-d”, Andy Hall, is on the opposite side of this (so far losing) bet.

Only time will tell how accurate the forecasts are.