Just as OPEC ditches the policy of pumping without limits, its forecasts show the strategy is paying off.

The Organization of Petroleum Exporting Countries said its share of world oil markets last year was 40%, up from a forecast of 38% two years ago, and will keep climbing to 41% in 2020, according to a report released Tuesday. That’s an extra 4.6 MMbpd of sales—equivalent to another Iraq—by the start of the next decade, a significant payoff for the Saudi-led policy even as short-term financial pressure forces a reversal.

OPEC reached a preliminary agreement in Algiers on Sept. 28 to reduce output and boost prices. The group’s unfetteredproduction succeeded in curbing supply from competitors such as U.S. shale explorers, but has also caused severe social and economic problems for some members as prices languish below $50/bbl. While the volume of oil sales may grow, the group is still set to endure low prices and cede billions of dollars of revenue in the coming years.

“Looking at the next couple of years, OPEC’s strategy is working, at least in terms of the market re-balancing and targeting higher market share,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Though sales volume is one part of the story—they’ll also be looking at revenues.”

Former Saudi Arabian Oil Minister Ali al-Naimi, who was the architect of the pump-at-will strategy that roiled markets since November 2014, still defends the decision. Speaking in London last week, he argued it would have been a mistake for OPEC to respond to the growth in U.S. production by cutting its own supplies. If the group focused on maintaining sales volumes, oversupplied markets would eventually re-balance themselves.

The World Oil Outlook, published by OPEC’s Vienna-based research department, backs up that view.

Naimi Vindicated

OPEC is projected to pump 40.6 MMbpd in 2020—including crude and natural gas liquids—equivalent to 41% of global supplies. When OPEC published its outlook in 2014, prior to the change in strategy, it expected to produce 36 MMbpd in 2020, a reduction in its market share to 37% from an estimated 38% in 2015.

As OPEC rises, its rival are set to decline. Supplies of shale oil from the U.S. and Canada are now forecast to drop by 400,000 bpd from 2015 to 2020, compared with estimated growth of 600,000 in the older report.

Still, the organization’s growth in market share comes at a cost. When OPEC published its 2014 outlook, it expected the average price of its crude in nominal terms would remain near $110/bbl for the rest of the decade. In the latest report, the group’s oil is assumed to trade at $65/bbl in 2021, compared with $41.98 on Monday. Brent crude, the international benchmark, traded at $46.40 at 10:34 a.m. London time Tuesday.

Weighing the gain in market share against the lower price trajectory, the value of the organization’s crude sales would be about $365 billion lower in 2020, according to Bloomberg calculations based on OPEC data.

“The Saudi-led market-share battle of the last two years has left the kingdom with little to show for its trouble besides burning through a quarter trillion dollars of foreign exchange reserves,” said Michael Tran, a commodity strategist at RBC Capital Markets LLC in New York. “In short, its oil policy has turned out to be a failed experiment.”

Source: www.worldoil.com