The persistent oil glut has now pushed a price recovery into the second half of 2017, a new report from McKinsey Energy Insights found.
McKinsey modeled four possible scenarios: a fast recovery, a slow recovery, under-investment and supply abundance.
The report found that the latest trends indicate that a slow market recovery scenario is the most likely outcome.
In a slow market recovery scenario, McKinsey found that it will take another six months for the market to clear the current oversupply.
Once the oversupply disappears, McKinsey expects that another six to 12 months will be required to work through excess inventories.
“The market is recovering but this may be slower than previously expected. We expect demand growth to decelerate as a result of slowing economic development and structural shifts in the transport sector,” Head of MEI James Eddy said.
The report also found that there is a key short-term risk that OPEC Gulf members could add more than 3 million to 4 million barrels per day of incremental production by 2019.
“This could potentially stifle oil prices further into 2018-19,” the report found.
McKinsey added that unconventional and offshore plays, along with OPEC Gulf production, will play “an important role” in replacing an expected 34 million barrel per day production decline in conventional basins through 2030.
McKinsey’s forecast is in line with one offered by the International Energy Agency earlier this month.
The IEA said in its most recent monthly oil market report that it does not expect oil markets to re-balance until 2017.
The agency found that global oil demand growth is slowing at a faster pace than initially anticipated as global economic growth cools.
Despite a steep decline in non-OPEC production, the IEA found that OECD inventories still “swelling to levels never seen before.”
OPEC production has continued to rise despite two years of low prices and is now “testing record rates” as Middle East producers open up their taps, the IEA added.
OPEC members will attend an informal meeting at the upcoming International Energy Forum where they could discuss a potential production agreement.
The meeting will be held in Algeria from September 26 to September 28.
According to an Algerian state media report seen by Reuters, OPEC Secretary-General Mohammed Barkindo said on Saturday that the meeting is “not a meeting for making decisions.”