Global oil production and prices will stay steady in the next decade, with production remaining 98 to 102 million bpd, while prices will be in the range of $40 to $100-plus a barrel with a neutral to bullish bias, say analysts.
Some of the key factors that will influence crude price and production in the next decade include US shale oil industry growth, rise of electric vehicles, the International Maritime Organisation's regulations with regards to sulphur, Opec production cuts, impact of climate across different parts of world, US dollar trend and global macroeconomic growth trends.
Historically, oil has shown a growing production trend when viewed from a long-term perspective of five to 10 years. During the start of this decade in 2011, total oil production stood at 88.53 million bpd. Current estimates for 2019 stand at 100.82 million bpd with next year seen at 102.28 million bpd.
Looking at the current decade's trend, oil production has grown with an average rate of 1.62 per cent year-on-year; 2014-15 saw the highest growth rate of 3.50 per cent with the current year's growth rate at minus-0.02 per cent (2018-19). Country-wise, the United States stands out as a clear winner with an average growth rate of 8 per cent for this decade.
For Opec, owing to its very model through which it operates, the production has dipped by an average of 0-.47 per cent in the current decade.
Industry estimates showed that global exploration and production spending grew by 8 per cent to $415 billion during the first half of 2019.
Oil prices in the current decade have hovered in the range of $26 to $114 a barrel. The oil market fall that occurred during the mid-decade saw oil prices drop by more than 75 per cent within a span of 18 months.
Current price action for oil suggests upward consolidation with WTI and Brent supported strongly near the $42 and $50 levels, respectively. The ongoing global economic slowdown is likely to keep sharp gains in oil under check.
"Should we have a scenario where outright global recession occurs, coordinated central bank policy action in the form of fresh quantitative easing [QE] stimulus is likely to be positive for risk assets. This is likely to pump up oil prices as we had seen during QE 1 and QE 2 during the 2009 and 2011 periods when oil prices rallied by more than 150 per cent from low of $33.50 a barrel," said Vijay Valecha, chief investment officer at Century Financial.
Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch, sees a rebound in supply growth for 2020 as non-Opec (excluding the US) supply expands at more than 900,000 barrels a day, the fastest pace of growth in a decade. While demand fell to 925,000 bpd in 2019 as economies activity slowed and consumption of OECD countries contracted.
"Next year, we anticipate a small rebound in demand growth to 1.08 million bpd as economic activity recovers from depressed levels in H1 2019," Blanch added.
Valecha says the price range forecast for the next decade is likely to see oil prices hover in the $40-$100 range with a neutral a bullish bias. The World Bank had predicted that all three major oil benchmarks - Brent, WTI and Dubai - will continue to increase after 2020 to reach $70 a barrel on average in 2030.
For the next 10-year period, he sees that oil production is estimated to average in the range of 98 million bpd to 102 million bpd. This estimates an average growth rate of more than 3 per cent over the current decade.
Valecha sees the rise in oil production will come from increased US shale, Opec supply adjustments and growth in selected offshore basins like Brazil where breakeven costs typical tend to below.
As per the latest market reports from major oil organisations, recent technological breakthroughs in various industries including shale oil are redefining way oil is explored and refined. This is more likely to lower the cost of exploration with margin supply expectation for a breakeven range sub-$65-$75.