OPEC Expects U.S. Shale to Steal Market Share Until Late-2020s

(Bloomberg) -- The rise of U.S. shale oil is set to extend well into the 2020s, stealing market share from OPEC, the group said in its latest World Oil Outlook.

Total supply from outside of the Organization of Petroleum Exporting Countries will surge by 8.6 million barrels a day from 2017 to 2023, to 66.1 million barrels a day. This will mainly be driven by increases in U.S. shale oil output, the report said. The estimates from this year’s report are a slight increase from those of the previous year.

American tight oil production will rise to 16 million barrels a day by the late 2020s, the report said, making up almost 25% of total non-OPEC supply by then.

Once U.S. production peaks, demand for OPEC’s oil should grow again, rising by 10.5 million barrels a day from 2017 to 2040. However, OPEC forecasts that its share of the global crude supply mix will rise just 2 percentage points, to 36%, by 2040.

“On the supply side, the key theme is the sustained recovery and significant growth in US tight oil production,” OPEC said in the report. “The long-term focus for additional liquids remains on OPEC.”

OPEC Expects U.S. Shale to Steal Market Share Until Late-2020s

Brent has gained about 18 percent so far this year -- at times topping $80 a barrel -- as production cuts from OPEC and its allies, as well as robust demand growth, have supported prices. The U.S. benchmark, West Texas Intermediate, has risen by 17 percent since the start of the year, reaching more than $75 a barrel.

Higher prices have helped to boost investment in crude globally, particularly in U.S. shale projects. Weekly American oil exports reached as much as 3 million barrels a day in June, while production has set several records this year.

It’s not just the U.S. that’s offering up stiff competition for OPEC. Supplies are also forecast to grow from other producers outside the bloc including Canada, Kazakhstan and Brazil, which will collectively add another 2.6 million barrels a day to markets by 2023.

OPEC said that global oil demand is set to increase by 14.5 million barrels a day by 2040, to 111.7 million barrels a day. That’s up from 97.2 million last year. However, the pace of growth will slow over time. In order to meet global crude demand growth, almost $11 trillion of investment will be needed across the industry to 2040, the producer group said.

The report says that oil is set to retain the highest share in the global energy mix through to 2040. However crude’s share will fall to 28 percent by then, down from 32 percent in 2015. OPEC forecasts that despite relatively low demand growth for fossil fuels through 2040, they will remain “the dominant component” in the global energy mix, with a share of 75% in 2040 -- a drop of 6 percentage points from 2015.

“While investments picked up slightly in 2017 compared to the previous two years, and the expectations are for higher levels again in 2018, it is vital that as an industry we ensure there is timely and adequate investment so as not to lead to a supply shortage in the future,” OPEC Secretary-General Mohammad Barkindo said.

OPEC launched the report on Sunday in Algiers, as its members met there with allies to discuss whether to increase production. OPEC and other producers allies tried in the Algerian capital to reassure the market that more oil is coming but stopped short of committing to the urgent supply boost that some people are looking for -- notably U.S. president Donald Trump. The meeting ended without any member committing to a specific output increase, delegates said.

©2018 Bloomberg L.P.