McKinsey Energy Insights (MEI), an energy data and analytics specialist in London, has released its latest Global Oil Supply and Demand Outlook to 2030, which identifies five potential supply and demand scenarios.
In the "usual" scenario, MEI expects oil prices to revolve about $60-70/bbl over the next 3 years and balance close to $65-75/bbl by 2030.
If members of the Organization of Petroleum Exporting Countries continue to adhere to the output cut deal-it achieved 90% compliance in January-then the short-term market rebalancing process is expected to proceed relatively smoothly over the coming months, according to the outlook.
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 key supply and demand drivers that will contribute to long-term oil price recovery. On the demand side, slower annual growth in global gross domestic product-2.5-2.7%-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 vs. current 30-35% reductions. US LTO will return to a formidable source of growth, while OPEC production will continue to grow with the market while maintaining constant market share.
Based on these conditions, E&P companies will need to add 35 million b/d of new crude production from unsanctioned projects by 2030 to meet demand, which would require $1.6 trillion cumulative capital investment over the next 5 years, MEI estimates. To meet these investment needs, upstream capital expenditures are expected to increase 6%/year but remain below the 2014 peak by 24% .