Commodity market report

Global macro oils long-term outlook H2 2014

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Report summary

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.

What's included

This report contains

  • Document

    Global macro oils long-term outlook H2 2014

    PDF 1.20 MB

Table of contents

  • Executive summary
    • OPEC
    • 2015 and 2016
      • Price risk
      • 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).
      • Background
      • 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
      • Infrastructure
      • Rail
      • Exports
      • Marine transport
      • Background
    • Brent - Dubai differential
    • Global
      • North America
      • Europe
      • Asia
      • Russia and the Caspian
      • Latin America
      • Middle East
      • Africa
      • Political Assumptions for the Demand Forecast
      • GDP Growth

Tables and charts

This report includes 57 images and tables including:

Images

  • 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)
  • Forecast of WTI - WCS differential
  • Figure illustrating methodology for WTI-WCS
  • Annual global production capacity change between the May 2014 outlook and November 2014
  • Year-on-year non-OPEC growth
  • 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
  • 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
  • Growing heavy crude oil supply from Canada*
  • Map showing some WCS routes to market
  • 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
  • Iraq production outlook
  • OPEC production capacity
  • Change to OPEC supply since May 2014
  • North American oil demand by major country
  • Change in North American demand by sector (kbd)
  • European oil demand by major country
  • Change in European oil demand by sector (kbd)
  • 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)
  • Latin American oil demand in major countries
  • Change in Latin American demand by sector (kbd)
  • Middle East oil demand in major countries
  • Change in Middle East oil demand by sector (kbd)
  • African oil demand in major countries
  • Change in African oil demand by sector (kbd)

Tables

  • Summary Data for key forecasts in the long-term outlook
  • Supply: Table 1
  • Global capacity outlook (million b/d)
  • World Oil Demand (million b/d)
  • Supply and demand balance
  • Brent, WTI and Dubai price outlook to 2035 (nominal and real)
  • US and Canada liquids production ('000 b/d)
  • Non-OPEC oil supply to 2035
  • OPEC oil/NGL capacity (million b/d)
  • Unconventionals Production to 2035 ('000 b/d)
  • North American Oil Demand by Product, including biofuels (million b/d)
  • European Oil Demand By Product, including biofuels (million b/d)
  • Asian Oil Demand By Product, including biofuels (million b/d)
  • China Oil Demand By Product, including biofuels (million b/d)
  • Real GDP Growth: Q4 2014 forecast

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