Data and analytics specialist McKinsey Energy Insights (MEI) has forecasted that it will take more than six months for the oil markets to fully rebalance.
In its latest research, MEI suggests that the pace and timing of an oil price recovery depends on four key drivers in the short-term; GDP growth, decline in producing fields, slowdown in US light tight oil (LTO) production and OPEC Gulf state behaviour - in particular, the actions of Iran and Saudi Arabia.
MEI, which modeled four possible future scenarios comprising fast recovery, slow recovery, under-investment and supply abundance, found the latest trends point towards a slow market recovery scenario. In this case, the market will take another six months for oversupply to disappear and another 6-12 months to burn excess inventories, according to the analytics company. In the long-term, continuous cost compression efforts could reduce average marginal costs to $65-75 per barrel, driven by deep-water and LTO plays, says MEI.
“The market is recovering but this may be slower than previously expected. We expect demand growth to decelerate as a result of slowing economic development and structural shifts in the transport sector,” said James Eddy, head of MEI.
“On the supply side, in addition to OPEC Gulf crude production, we see unconventionals and offshore resources playing an important role in replacing the 34 million barrels per day decline in conventional basins through 2030,” he added.
The research also notes that there is a key short-term risk that OPEC Gulf members have the capacity to add more than 3-4 million barrels per day incremental production by 2019. This could potentially stifle oil prices further into 2018-19.
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