LONDON — McKinsey Energy Insights (MEI), a data and analytics specialist, forecasts 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 U.S. light tight oil (LTO) production and OPEC Gulf state behavior, in particular, Iran and Saudi Arabia.
MEI modeled four scenarios—fast recovery, slow recovery, under-investment and supply abundance—and 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. In the long term, continuous cost compression efforts couldreduce average marginal costs to $65-75/bbl, driven by deepwater and LTO plays.
James Eddy, head of MEI, said, “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.
“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 MMbpd decline in conventional basins through 2030.”
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 MMbpd incremental production by 2019. This could potentially stifle oil prices further into 2018-19.