Delay in full oil price recovery expected until late 2020

McKinsey Energy Insights forecasts that global oil prices will remain in the $50–$60/b range until late 2020. With market uncertainty causing oil prices to decline from $55/b in January to $46/b in June this year, and with inventories still being absorbed, McKinsey has revised its ‘lower for longer’ scenario in its latest Global oil supply and demand outlook.

The outlook is driven by market uncertainties, which are a mixture of negative (supporting lower prices) and positive (supporting price recovery) market fundamentals. In the medium term, six key signposts are expected to impact the speed of market rebalancing and price recovery under the ‘lower for longer’ scenario:

Liquids demand growth gradually slows down to 1mn b/d per annum in 2017–2021, driven by flattened global economic growth, improved energy efficiency and alternative fuels.

Decline rates have visibly accelerated in onshore conventional fields which will result in 1mn b/d per annum declines in production up to 2021.
OPEC is expected to adhere to production cuts and then ramp up production when markets tighten again, following historical patterns.
North American shale oil output is projected to keep growing despite low prices, reaching 6.6mn b/d by 2021 due to improved breakevens and capital availability.
Production from projects reaching final investment decision (FID) after 2014 is not enough to fill the supply gap, which results in tightening in global oil markets by 2020–2021.
Inventory build-up has stopped without much withdrawal despite the expectations based on flattening futures spread, yet it will take two to three years for stocks to go back to five-year average levels given the current overhang.

In the longer term (2020–2030), McKinsey estimates that exploration and production companies will need to add 35mn b/d of new crude production from unsanctioned projects by 2030 to meet demand. Under these circumstances, 2025–2030 marginal costs are projected to reach $60–$70/b.