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OPEC forecasts flatlining demand for its oil ahead of US shale peak

Algiers — Growing tight oil output in the years ahead will cap global demand for OPEC's crude, the bloc said in a report Sunday, highlighting the impetus for a permanent supply management pact with Russia and other allies if it aims to keep prices stable.

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In its World Oil Outlook, OPEC revealed that the world will need much less of its oil than it had forecast last year, indicating that the 15 members of the bloc will need to maintain production discipline in the coming years to avoid a supply glut.

Total non-OPEC oil supply will surge on the back of US shale from 57.5 million b/d in 2017 to 66.7 million b/d in 2025 before leveling off and then tapering to 62.6 million b/d in 2040, the report found.

As a result, the so-called call on OPEC crude will remain relatively steady around 32.6 million b/d for the next few years, before dropping to 32.1 million b/d in 2025 and then rising again to 39.9 million b/d in 2040.

That compares to last year's outlook forecast of 33.5 million b/d in 2025 and 41.4 million b/d in 2040.

OPEC production in August stood at 32.6 million b/d, the organization said earlier this month.

"Stability today begets stability tomorrow, which is vital given that our industry remains a growth business, with oil continuing to be a fuel of choice for the foreseeable future," OPEC Secretary General Mohammed Barkindo wrote in the foreword of the report.

The fracking revolution in the US and undisciplined pumping by OPEC members caused oil prices to crash in 2014. The market did not begin to recover until August 2016, when OPEC finally agreed in Algiers with 10 non-OPEC producers, including Russia, to draft a "Declaration of Cooperation" committing the group to production cuts starting in 2017.

Now, two years on, OPEC and its partners, who together control about half of global crude production, are back in the Algerian capital aiming to make permanent their partnership before it expires at year's end, even as they unwind the cuts.

A draft charter was circulated to all members ahead of Sunday's meeting of the OPEC/non-OPEC Joint Ministerial Monitoring Committee, attended by nearly all of the 25 member delegations. It calls for the coalition to meet at least once a year and to take unspecified measures as necessary to ensure the stability of the market.

"It is clear that the 'Declaration' has now become a permanent feature of the global energy scene, establishing a novel framework for producing countries, whilst also taking into account the vital interests of consumer countries, as well as the global economy," Barkindo wrote in the outlook. EV demand impact

Like all long-term energy outlooks, OPEC sees oil remaining the dominant fuel in the global energy mix in the coming decades, and the organization revised upward its forecast for 2040 oil demand from last year's report.

Oil's share of the energy market will still be some 28% by then, as long-term demand will increase by 14.5 million b/d to hit 111.7 million b/d, the report stated, up from 111.1 million b/d forecast in the 2017 World Oil Outlook.

That is an annual growth rate of 630,000 b/d, but the rate is much higher in the early years of the forecast period, averaging 1.2 million b/d from 2017 to 2023.

OPEC will provide 36% of global oil supplies by 2040.

Electric vehicles will make up 13% of the global fleet by 2040, the report stated. But a faster adoption rate in OPEC's most aggressive forecast for electric vehicle purchases could depress global oil demand by 2.9 million b/d by then, OPEC said.

That is less impactful than it had forecast last year, when it projected a potential 3.1 million b/d hit to oil demand from EVs.

"The long-term picture for electric vehicles remains somewhat uncertain, due to a number of factors such as economics, the cost of electric vehicles relative to conventional vehicles, concerns regarding range and charging infrastructure, as well as the continuity of the governmental support," the report stated.

On the downstream side, OPEC's analysts expect about 18 million b/d of refinery capacity additions through 2040, mostly in Asia and the Middle East.

As it has warned repeatedly over the last few years, OPEC said the oil industry is in need of significant investment to meet growing demand, to the tune of almost $11 trillion over the next two decades, the report estimated.

The price slump caused by the supply glut forced many companies to drastically slash their capital budgets, with investment only just starting to recover.

"While investments picked up slightly in 2017 compared to the previous two years, and the expectations are for higher levels again in 2018, it is vital that as an industry we ensure there is timely and adequate investment so as not to lead to a supply shortage in the future," Barkindo wrote.

OPEC members, he added, were "fully committed" to the drive for more capital expenditures, a major thrust of their supply management pact that they hope to renew. --Herman Wang,

--Edited by Robert Perkins,