OPEC forecasts oil prices to reach $70 a barrel by 2020

The Organization of Petroleum Exporting Countries (OPEC) forecasts oil prices to recover to $70 a barrel by 2020.

The average selling price of crude by OPEC members is set to rise by approximately $5 annually until 2020, according to what Bloomberg economists extrapolated from an internal research report.

Oversupply and slowing demand has driven prices down from over $110 a barrel in the summer of 2014 to below $37 at the end of this year.

In its 2015 World Oil Outlook report, OPEC said:

“The economic picture in the non-OECD region is gloomier than last year. The Chinese economy seems to be maturing and growth is decelerating faster than previously expected. Economic pessimism in Eurasia has also been exacerbated due to geopolitical developments.

“Furthermore, from a policy point of view, additional climate change mitigation actions, as well as increasing support to renewable energy, the removal of subsidies, new upstream fiscal regimes and further energy efficiency targets have emerged as important factors. All in all, 2015 has been a challenging year for the industry.”

OPEC forecasts the world’s total crude demand to reach 97.4 million barrels per day by the end of the decade.

On the demand side, OPEC sees oil demand rise to 97.4 million barrels per day (mb/d) by 2020, compared to 96.9 mb/d in last year’s Outlook, an increase of 500,000 b/d. Demand in developing countries will surpass that of the OECD by 2020. Demand in Eurasia is expected to increase by 0.3 mb/d, totalling 5.5 mb/d by the end of the medium-term.

OPEC, which accounts for a third of the world’s crude production, said that it expects a “gradual improvement in market conditions as growing demand and slower than previously expected non-OPEC supply growth eliminate the existing oversupply and lead to a more balanced market.”

The OPEC report foresees “huge reductions” in spending on exploration and production because of low oil prices. The cartel said that these cutbacks will result in a drop in supply – driving prices up.

However, the group noted that while global oil demand is expected to grow during the medium-term (2014–2020) by 6.1 mb/d, it sees growth decelerating to 3.5 mb/d during the period 2020–2025 and 3.3 mb/d for 2025–2030.