For this long-term update, we have incorporated the short term supply and demand forecast from the end-November monthly update. For the period after 2016, we use the supply and demand forecast we completed in November before the 27 November 2014 OPEC meeting.
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Global macro oils long-term outlook H2 2014 PDF - 1.20 MB 50 Pages, 15 Tables, 42 Figures
December 2014 LTO Data.xls XLS - 239.00 KB
The oil industry is one of the largest in the world, with high revenues and costs, and major investments that have long lead times. Recent global changes in supply and demand have deeply impacted the industry, causing ongoing uncertainties and a murky outlook, with long-term fundamentals guiding industry performance.
This Oil Markets Long Term Outlook report provides detailed fundamentals of supply and demand. It also gives an overview of geopolitical factors that play a role in Wood Mackenzie's price outlook.
Oil sector participants can use this report to understand the key factors affecting oil prices. It also gives you a good understanding of long-term strategy and investment decisions by industry players and governments in all parts of the oil and gas value chain.
Wood Mackenzie offers an informed, independent view on oil prices and the key drivers and trends in the oil market. Our highly experienced analysts are based in the key oil-producing and consuming regions they analyse, providing detailed field-by-field data and demand forecasts driven by country and sector developments. Our trusted insight helps you deliver successful growth strategies.
There are many uncertainties that influence the crude oil price outlook. Aside from a significant increase in unplanned outages (which remains a threat in locations such as Libya), the key risk to oil price in 2015 is global economic growth and associated oil demand. For example, if 2015 global economic growth is closer to 2.0% compared to our forecast of 2.7%, Brent may need to fall below $70 per barrel to curb oversupply more quickly.
Upward price risk
OPEC policy is never set in stone. Pressures on the poorer OPEC nations could cause some leniency on the approach agreed at the 27 November meeting. More talks could ensue if prices fall into the $50 to $60 per barrel range. Geopolitical turmoil worsening in the Middle East or political instability in a key producing nation would support prices even without OPEC action.
Oil markets could anticipate the supply effect from low prices and prices begin to rise sooner than we are forecasting. Or, there could be a greater than expected supply side effect from low prices. The reduction in cash flow and upstream spending could have a larger effect and act more quickly than our initial assumptions for tight oil in 2015 and 2016.
Stronger than expected oil demand growth is a risk. Low oil prices create an upside potential in markets such as the US, where the reduction in crude prices already has had a significant impact on fuel prices and drivers are responding. An additional oil demand uncertainty is related to a projected switch away from oil. In particular, the switch in the power generation sector in Russia and Middle East could take place at a slower pace than anticipated if alternative fuel sources, such as natural gas and nuclear power, are not available. By 2016, this also becomes a factor that could boost our Japanese outlook, dependent on the scheduled returns to output of nuclear power plants that were shut down in the wake of the Fukushima disaster.
Downward price risk
A lower than expected price floor for US tight oil is a key risk. We have not been through this with US tight oil in the past and it could be that costs fall quickly as the industry reacts. Oil prices might then need to be lower than we have forecast and for longer than expected to curtail enough US tight oil growth.
If global economic growth fails to recover to 2.7% heading into 2015, then demand growth is likely to be weaker than projected. Low oil prices do not necessarily lead to more demand. For some countries, the latest low oil price forecast is a downside risk to demand, reflecting the reliance on oil revenues to generate economic growth and provide revenues for governments. Lower oil prices will prove to be problematic for Russia's economy, where energy provides two thirds of export revenues and half of government income.
Supply outages remain an uncertainty that could lead to more volumes being added to the market. Our estimate of a total of 3.8 million b/d of outages in first half 2014 has been reduced somewhat, as Libya restored some 0.5 million b/d. But some more of this oil could come back into the market and we do not have it in our base case forecast. One example is Iranian crude oil production. Sanctions against Iran remain in place but negotiations continue. A likely outcome of success would be an increase in Iran's oil exports over time. While sizeable hurdles remain towards a deal, this is an example of a supply risk for the market.
With an effect on supply and demand from current low prices, we expect Brent to average $88.00 per barrel in real terms for 2017 and $93.56 per barrel in nominal terms, up from $83.70 in nominal terms in 2016.
From 2017 to 2020, OPEC spare capacity is close to 7 million b/d. From the start of the next decade, we expect oil prices to increase from an annual average in 2020 of $94.00 per barrel in real terms for Brent due to the trend of tightening in OPEC spare capacity, but also to ensure adequate levels of upstream investment are available to meet oil demand growth in the non-OECD. OPEC spare capacity narrows during the decade to 4.85 million b/d by 2030, which is only 4.5% of total world oil demand. We forecast Brent to average $116.00 per barrel in real terms for 2030 and $118.00 in 2035 when we forecast OPEC productive spare capacity at just 0.8 million b/d.
The rising cost of the sources of supply needed to meet continued oil demand growth throughout the period from the non-OECD. These include the highest cost marginal sources of supply in non-OPEC producers. We expect a degree of development for unconventional sources of supply for policy reasons by governments interested in energy self-sufficiency. In addition, biofuels are a significant part of meeting oil demand in the period to 2035. Other unconventionals include gas-to-liquids, coal-to-liquids and limited amounts of oil shale (mined kerogen).
Brent - West Texas Intermediate (WTI) differential
Growing supply of US light crude
Refining demand for light crude oil
Crude oil transportation infrastructure
Increased demand for US crude oil
Increased supply of US crude
West Texas Intermediate (WTI) - Western Canadian Select (WCS) differential
Brent - Dubai differential
Impact of changes to our outlook since May 2014
Key changes to our Non OPEC outlook since May 2014:
Key changes to our OPEC Outlook since May 2014:
Political Assumptions for the Supply Forecast
Regional Demand Forecast
Russia and the Caspian
Political Assumptions for the Demand Forecast
In this report there are 57 tables or charts, including:
Summary Data for key forecasts in the long-term outlook
OPEC Spare capacity and its proportion of World oil demand
Brent and WTI history and forecast to 2035 (real and nominal)
US tight oil new development volumes by breakeven* ($WTI)
Conventional new development volumes by breakeven* (Brent)
Supply and demand balance
Brent, WTI and Dubai price outlook to 2035 (nominal and real)
Brent-WTI in 2014 low crude oil price environment
Map showing selected transportation routes for US light tight oil
Forecast of Brent-WTI differential
Growing supply of domestic light crude is being processed in US refineries
Rail off-loading capacity at refineries and third party terminals
Value of light sweet crude in Houston relative to Brent
Growing US light crude in Gulf Coast crude slate
Forecast of WTI - WCS differential
Growing heavy crude oil supply from Canada*
Map showing some WCS routes to market
Figure illustrating methodology for WTI-WCS
Illustration of refining value curves
Refining value of WCS and coking capacity
Disposition of WCS to refining markets
Disposition of WCS by mode of transport
Annual global production capacity change between the May 2014 outlook and November 2014
Supply: Table 1
Year-on-year non-OPEC growth
Global capacity outlook (million b/d)
US and Canada liquids production ('000 b/d)
Non-OPEC oil supply to 2035
Iraq production outlook
OPEC production capacity
Change to OPEC supply since May 2014
OPEC oil/NGL capacity (million b/d)
Unconventionals Production to 2035 ('000 b/d)
Global demand (million b/d)
Growth in global oil demand, 5-yr interval, region
World Car Population Increase, 2014 – 2035
Revisions to Global Demand since the May Long-Term Outlook, by region
World Oil Demand (million b/d)
North American Oil Demand by Product, including biofuels (million b/d)
North American oil demand by major country
Change in North American demand by sector (kbd)
European Oil Demand By Product, including biofuels (million b/d)
European oil demand by major country
Change in European oil demand by sector (kbd)
Asian Oil Demand By Product, including biofuels (million b/d)
China Oil Demand By Product, including biofuels (million b/d)
Asian oil demand in major countries
Change in Asian oil demand by sector (kbd)
Russia and Caspian oil demand in major countries
Russia/Caspian change in oil demand by sector (kbd)
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Commodity market report | Dec 2014
Global macro oils long-term outlook H2 2014
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