LONDON OPEC's oil market share is set to be 5 percent smaller by 2018 as supply of U.S. shale oil grows faster than previously thought, giving the 12-member exporter group little comfort from rising world demand.
The Organization of the Petroleum Exporting Countries has tended to downplay the impact that hydraulic fracturing, or fracking, is having on supply. Now, it expects the rise in U.S. shale oil output to last longer and the supply source to start spreading to other countries.
In its 2014 World Oil Outlook, OPEC said it expected global demand for its crude oil to average 28.50 million barrels per day (bpd) in 2018, down 1.5 million bpd from 2014, because of increasing non-OPEC supply even as global demand rises.
The expected demand in 2018 is almost 2 million bpd less than OPEC is currently producing and suggests the organization, which pumps a third of the world's oil, faces an oversupplied market in the medium term without cutting its own output.
OPEC faces a similar choice on Nov. 27, when its oil ministers gather to review its output target of 30 million bpd for the first half of 2015. Oil has fallen this week to a four-year low below $82 a barrel, in part on expectations OPEC will not cut output.
Under another, upside supply scenario, OPEC sees as much as 6 million bpd more non-OPEC supply in 2040 than in the baseline situation coming from shale and other supply sources, keeping downward pressure on its market share in the longer term.
"On the supply side, the last few years have seen significant growth from non-OPEC countries," OPEC Secretary-General Abdullah al-Badri said in the foreword to the report. "The Outlook continues to see non-OPEC supply growth in the medium term, albeit decelerating over the time horizon."
OPEC, which holds 80 percent of the world's conventional oil reserves, has had a general consensus since 2012 that oil prices of around $100 a barrel -- in nominal terms more than double their level a decade ago -- are reasonable and fair.
Higher oil prices have helped to make a wider range of supply economic to produce, including fracking, oil extraction from tar sands and conventional oil wells in harder-to-tap reservoirs like ultra-deep waters and in more remote locations.
The shale boom has already altered oil flows, forcing OPEC members such as Nigeria and Algeria to seek other buyers for their crude as the United States, whose output was once thought to have peaked, pumps more and requires fewer imports.
OPEC now sees the peak in U.S. output of shale oil and natural gas liquids (NGLs) occurring later than previously thought, and expects that tight oil will start to make an impact in other countries.
"Overall, tight crude supply projections in the reference case have been revised upward," the report said, due to "higher-than-expected supply from the U.S., better well productivities in some areas, and the inclusion of tight crude production forecasts from Argentina and Russia."
Argentina and Russia are expected to produce 700,000 bpd of tight oil by 2040. Last year's reference, or baseline, scenario assumed shale oil would have no impact outside North America.
OPEC officials have often downplayed the impact of shale oil, although its annual outlook in 2012 acknowledged for the first time that the effect could be "significant".
The report still sees a leveling off of U.S. shale oil supply, although this is expected to take place later. It cites
challenges including a rapid output decline from wells and environmental concerns. So far, output has defied expectations of a peak.
"Even over the medium term we expect a slowdown in the contribution of this source, the supply of U.S. tight crude and unconventional NGLs is now expected to peak a little later -- the last years of this decade -- and to remain higher in the longer term," the report said.
While OPEC sees its market share under pressure, the medium-term global demand for oil is benefiting from a generally improving economic outlook and upward revisions to earlier data.
In its reference scenario, OPEC forecasts world demand will reach 93.2 million bpd by 2016, some 700,000 bpd more than its 2016 forecast in last year's report, and 96 million bpd by 2019. By 2040, OPEC expects demand to reach 111 million bpd.
Supply from countries outside OPEC is seen rising to 60.6 million bpd in 2019.
The report raised its forecasts of global output of shale to 4.5 million bpd by 2020, although it sees supply slowing to 4 million bpd by 2040. But the upside supply scenario sees no peak and expects supply by 2040 to reach almost 6 million bpd.
As well as shale over the medium term, Brazil and Columbia, the Middle East and Africa, Kazakhstan and Russia are expected to provide growth, as well as some extra biofuels supply mainly from Brazil and Europe.
OPEC kept the same oil-price assumption as last year, expecting its preferred measure of prices to remain at $110 to 2020, which it says corresponds to a small decline in real values, and around $100 in real terms in the long run.
(Editing by Dale Hudson)