Data: Maintaining the demand-supply poise
In an ideal scenario, McKinsey Energy Insights expects oil prices to balance close to $65-75 per barrel by 2030
McKinsey Energy Insights (MEI) has released its latest Global Oil Supply and Demand Outlook, which identifies five potential supply and demand scenarios. If the market was to follow MEI’s business as usual scenario, it would expect oil prices to revolve around $60-70 per barrel over the next three years and balance close to $65-75 per barrel by 2030.
The report says that following OPEC’s decision to prolong the output cut deal for nine more months, until March next year, the short-term market rebalancing process is expected to be relatively smooth in the coming months. MEI expects strong growth in North America’s light tight oil (LTO) production, while accelerated legacy declines due to the lack of upstream investment will help reduce oil oversupply. The excess inventory in the market will lead to increased price volatility in the near term. MEI has identified six supply and demand drivers for long-term oil price recovery.
On the demand side, slower growth in global GDP — 2.5-2.7% p er annum — coupled with decreasing oil intensity, due to improved energy efficiency and alternative fuels, will drive a structural deceleration in oil demand growth. On the supply side, the level of decline in legacy production, the cost of new production, and LTO and OPEC production will all affect the supply stack. MEI projects that the change in supply mix towards energy resources with faster decline will lead to a faster than usual global decline rate, while new production sources will become more economic than 2014 levels, due to cost-cutting strategies introduced during the downturn. Aggregated cost improvements are expected to yield 15-20% reductions in project breakeven price (versus current 30-35% reductions).