OPEC’s annual report sees its oil reference point at $60 per barrel in 2020

The Organization for Petroleum Exporting Countries released its annual World Oil Outlook Tuesday, lowering its working assumption for oil prices moving through the end of the decade.

OPEC sees its reference basket (ORB) price averaging $40 per barrel in 2016, and increasing $5 per year through 2021. In the group’s last World Oil Outlook, OPEC pegged ORB prices at $80 in 2020, $20 per barrel more than what the group now believes it will receive for its oil at the end of the decade.

OPEC saw prices increasing $5 per year in both this year’s and last’s outlook, but the lower starting point curbed the group’s expectations for oil price growth over the next five years. The group emphasized that this number is neither a forecast nor a desired price, but rather OPEC’s working assumption for baseline development.

The reference basket price is made up of a number of crude oil products from OPEC members and is typically lower than the international and U.S. crude oil benchmarks. The ORB price fell to a 2016 low of $22.48 in January while Brent and WTI reached the bottom of their respective troughs at $27.10 and $26.05 per barrel.

OPEC said in its report that it anticipates that its ORB price will reach $92 per barrel by 2040 in 2015 dollars.

Lower prices lead to more than $300 billion in lost investment

Lower prices have had a serious impact on future development in the oil and gas sector, OPEC said in the foreword of its report. Over the course of the last two years, the group believes that spending on exploration and production has fallen more than $300 billion, impacting “not only new projects coming on stream, but new discoveries too.”

OPEC Secretary General warns of market instability without production deal

Oil prices have received a lift from OPEC since the group said it planned to reach an agreement on production, but markets are increasingly worried the group will be unable to execute on the deal. Oil is $8 off of highs seen following the announcement of the group’s deal as members like Iran, Iraq, Libya and Venezuela look for exemptions.

If OPEC is unable to reach a deal, it will have “negative consequences on the already fragile state of the industry,” OPEC Secretary-General Mohammed Barkindo said Tuesday at a briefing in Abu Dhabi, emphasizing the need for non-OPEC producers to join in the deal as well.

“Failure to jointly act with our non-OPEC colleagues and friends in accordance with the Algiers accord will further elongate this period of very low growth, this period of instability in the market, and will put forward, further, the re-balancing process,” he added.

Producers like Russia have been unwilling to join the group’s production deal until it has solidified an agreement with its own members. OPEC has also reached out to Azerbaijan, Brazil, Kazakhstan and Mexico as it looks for partners outside of its own members to take part in the deal.

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