OPEC Expects $95 Oil in 2040

The last time the price of a barrel of OPEC crude stood at $95 was in the summer of 2014. The next time the price will reach that level is 25 years from now.

At least that’s the price outlook from the Organization of the Petroleum Exporting Countries (OPEC) in the World Oil Outlook released Wednesday morning. The cartel expects the price of its reference basket of crude to reach about $71 a barrel by 2020 in real (inflation-adjusted) dollars and $80 in nominal terms. By 2040, the nominal price of a barrel will double from its 2020 level to $160 a barrel. The OPEC reference basket price is based on the average price of 12 crude varieties.

Predicting the price of oil more than two decades into the future is typically a fool’s errand. Even predicting the price of crude a month from now is risky. But the OPEC countries, and the supermajor oil producers like Exxon, Chevron and Shell, are almost forced to try to gaze that far into the future in order to make the decisions needed on whether to pursue a multibillion project that may not produce a drop of oil for up to 10 years.

According to the outlook released Wednesday, global demand for oil will rise by an average of 0.7% a year between 2013 and 2014, and overall demand for liquids in 2040 will reach nearly 110 million barrels a day. That’s a drop of 1 million barrels a day from last year’s estimate, which OPEC attributes to energy efficiency improvements, environmental policies and slightly lower long-term economic growth estimates.

The increase in the overall requirement for OPEC crude between 2015 and 2040 is nearly 10 million barrels a day, according to the outlook. Non-OPEC producers are expected to see a demand increase of 3 million barrels a day in the same time period.
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Demand growth in developing countries accounts for more than 100% of increased demand through 2040. Developed countries are expected to experience a demand drop of 8 million barrels a day by 2040 to 37.8 million barrels a day, after reaching a peak in 2016 of 46.4 million barrels a day. In developing countries, demand is expected to rise from 41.1 million barrels a day in 2015 to 66.1 million barrels by 2040.

Oil will continue to be the main fuel source for passenger cars. OPEC forecasts that by 2040 just 6% of the world’s passenger car fleet and 5.3% of the commercial fleet will be running on non-oil fuels.

In real dollars, investment in meeting the projected demand amounts to almost $10 trillion, according the outlook. Most of that, $7.2 trillion, is upstream investment, and OPEC expects that most of that investment will be made in non-OPEC countries. Over the medium term (to 2020), needed non-OPEC investment is estimated at $250 billion annually, while OPEC nations’ investment over the same period is $40 billion annually. In the long term, out to 2040, OPEC members will need to invest $60 billion annually, while non-OPEC members are forecast to need investment totaling $210 billion annually.

The entire World Oil Outlook runs to more than 400 pages.