5 key signposts that will set the cost of the marginal barrel of oil in the long term

March 2018 | Anna Nikitina


Our updated Global Oil Supply & Demand Outlook to 2030 explores in detail the 5 signposts that will set the cost of the marginal barrel of oil in the long term. This article provides a quick overview of each signpost, color-coded to reflect the positive or negative impact on oil prices.

We expect prices to increase towards $70/bbl after 2020 as the full effect of MARPOL regulations is reflected on global demand while non-OPEC supply is short due to lack of investment in the last 3 years. OPEC and US shale oil producers will capture this opportunity by increasing production. US shale oil will plateau by 2027-28, opening up investment opportunities for other resource types such as deepwater and international shale oil.



1. Global oil demand

Long-term oil demand growth is driven mainly by chemicals, but at a much slower pace of 0.7%p.a., as energy efficiency and EV substitution cause road transportation consumption to peak. Meanwhile, MARPOL legislation will bring further 1MMb/d of demand p.a.



0.7% p.a.

oil demand growth to 2030



2. Non-OPEC declines

In the long term, the industry will need to replace 4-5MMb/d production every year due to declining production in mature basins.





4-5MMb/d

oil production needed p.a.

global oil outlook to 2030 spotlight image

NEW OUTLOOK


Global Oil Supply & Demand Outlook to 2030

Our updated outlook focuses on the impact of key drivers on the pace and timing of oil price recovery, the evolution of regional oil production, and the economic implications of long-term market trends for oil supply and demand.



3. North American shale oil

US shale oil will grow above 10MMb/d, but resource constraints in legacy plays will restrain long-term output.



10MMb/d

2030 US shale oil production



4. OPEC production

OPEC is set to maintain its market share at around 43% in the long run, as the organization will manage supply to balance the market when needed.



43%

2030 OPEC market share



5. New project costs

Recent improvements in project cost savings are expected to be partially maintained and translate to 15-20% reductions in project breakeven costs by 2030 .



15-20%

reduction in breakevens





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About the authors

Anna Nikitina is a senior analyst with McKinsey Energy Insights based out of McKinsey's Warsaw office.



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