The Organization of the Oil Exporting Countries significantly reduced its outlook for crude prices in the next few years in its annual World Oil Outlook published Tuesday.
The 14-member oil producer group now assumes its OPEC reference basket price will reach $60 a barrel by 2020. Last year, OPEC's oil price assumption was $80 a barrel in 2020.
In both years, OPEC saw prices rising by $5 a year, but it is starting from an average price of $40 a barrel for the reference basket in 2016, compared with a $55 a barrel average in 2015.
The OPEC reference basket is made up of a number of crude oil products from member states and is typically lower than the international and U.S. benchmarks by a slight margin. The reference basket price fell to a 2016 low of $22.48 in January, while sank to a multiyear low of $27.10 the same month. West Texas Intermediate bottomed out at $26.05 in February.
OPEC notes the outlook is not necessarily a forecast or desired price path, but an assumption it uses to guide its reference case.
In light of the decline in investment over the past two years, the industry needs to ask whether low oil prices have put the future supply-demand outlook at risk, OPEC Secretary-General Mohammed Barkindo warned in a foreward to the report.
"While the recent oil market environment has been one of oversupply, it is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future," he said.
In OPEC's 10th WOO edition, the group cites numerous uncertainties ahead when projecting how oil is likely to perform through to 2040, though it does anticipate the commodity is to remain the fuel with the largest market share for most of this period.
Investors focus on meeting
The oil market needs to be stable in order to prevent economic hardship, OPEC said in its latest WOO report, while investors eagerly await the outcome of the organization's meeting scheduled for Nov. 30.
OPEC members pledged at their last meeting in Algiers to cut oil production by as much as 2 percent. The latest WOO report will be scoured for clues as to whether or not the group will stick to its promise.
Critics have raised questions as to just how likely it is the cartel will indeed seek to curb output at its November meeting as the details of how much it will cut oil production by, and which countries will act, remain absent.
Oil prices recorded a weekly percentage decline last week not seen since January, with Brent crude hitting $45.08 and WTI slumping to $43.57.
However, on Monday, oil prices were seen to rebound after OPEC underlined the group's intention to reach an output deal at this month's gathering.
Market belief has 'collapsed'
When it comes to supply, the OPEC report predicts non-OPEC supply to initially fall in the coming year before increasing up until 2021.
"It all means that OPEC will be required to meet most of the additional long-term oil demand," the report's foreword said.
"In terms of crude, it is expected that OPEC will have to supply an additional 8.9 mb/d (million barrels a day) between 2015 and 2040."
Not everyone is convinced that OPEC will seek to tackle oversupply by cutting production on Nov. 30 as David Hufton, managing director of PVM Oil Associates, told Reuters, "Market belief that OPEC can reach a credible deal has collapsed and prices are now $8 a barrel off the post-Algiers highs."
"The numbers show that the best deal OPEC are likely to come up with is well short of what is needed to achieve a balanced market in 2017," he added.
International dialogue imperative
Perhaps the most notable challenge for OPEC comes in the shape of the Paris COP21 agreement. The historic climate change deal adopted by almost 200 countries last December came into effect Friday.
The WOO reports that renewable energy sources as well as nuclear energy will increase in market share regardless of how quickly the COP21's objectives are achieved and this would partially offset the loss in demand for fossil fuels.
OPEC concludes the report by indicating that given the countless uncertainties that the organization is likely to face, it is imperative that it continues to participate in international dialogue.