Global Oil Supply & Demand Outlook to 2035

Markets entered a period of uncertainty in the second half of 2018, with oil prices oscillating between USD85/bbl and USD50/bbl. In December 2018, OPEC reinstated a cut agreement, helping stabilize prices. We reflect this in our short-term base case scenario, where we expect market fundamentals to keep prices from fluctuating outside the ~60-70USD/bbl range through 2022. Five key wildcards could pose significant upside or downside risks, however, which we explore in our high and low case scenarios.

Over the course of 2018, oil prices fluctuated, reaching as high as USD85/bbl and falling as low as USD50/bbl. This volatility meant that North American independents returned lower profits to shareholders, though shale drilling lead production to grow by 1.1 MMb/d in the US. After depleting its excess inventories, the Organization of Petroleum Exporting Countries (OPEC) once again turned its focus to production growth, but by December, the cartel decided to reinstate production cuts to prevent oversupply. While further price volatility and oversupply has led to an increase in inventories, our outlook post-2022 is more positive than it was a year ago.

Short-term outlook to 2022

If demand growth stays healthy and OPEC maintains disciplined regarding production, we expect to see average oil prices in the USD60-70/bbl range to 2020. After 2020, prices are likely to remain closer to USD60/bbl, due primarily to sluggish demand growth and continued production of shale oil in North America. However, two possible scenarios could change this outlook. First, should the global economy slow down even more, prices could fall to the USD50-55/bbl range. Second, supply disruption due to falling Venezuelan and Iranian production and reduced OPEC spare capacity could lead prices could reach a high of USD80-90/bbl.

Long-term outlook to 2035

Over the long term, we expect to see average oil prices in the USD65-75/bbl range, with supply growth primarily from OPEC, US shale, and a few offshore basins that break even below USD75/bbl. However, we also anticipate that demand growth will hit its peak in the early 2030s due to slow chemicals growth and peak transport demand driving down oil consumption. Still, to meet demand, E&P companies will need to add >40 MMb/d of new crude production, mostly from offshore and shale unsanctioned projects. Roughly 4-5% of this new production will need to come from yet-to-find resources.

Accelerated transition outlook to 2035

In an accelerated transition, radical disruption in road transport and chemicals could result in peak oil demand before 2025 and a ~30-MMb/d decline by 2035 compared to the reference case. Disruption to liquids demand would reduce the need for unsanctioned projects by ~50%, driving project cancellations and delays in offshore regions and oil sands. Lower oil demand could subsequently drive oilfield services and refinery utilization down, with European refineries feeling the strongest impact. The reduced supply stack would then lead the average global crude slate to become more sour.