Making Sense of the Oil Market Richard de Caux. March, 2011

Transcription

1 Making Sense of the Oil Market Richard de Caux March, 211

2 The oil price $/bbl Dated Brent Annual averages Source: Includes data from Platts

3 Making sense of the oil market What makes oil different? Trends in oil consumption, production and reserves Putting together an oil supply & demand balance Assessment of the market

4 Uneven distribution of reserves Oil reserves split by region 1% 3% This map contains more than half the world s oil reserves 1% 1% 1% 6% 6% Mid East S&C America FSU Asia N America Europe Africa Source: BP Statistical Review of World Energy 29

5 Large regional imbalances Mb/d Consumption Production Asia Pacific Africa Middle East FSU Europe S. America N. America Source: BP Statistical Review of World Energy 29

6 Refining: industry between producer and consumer. Transportation reliant on oil products Break down of UK oil consumption 1% LPG, Gas & Naphtha 9% Motor Gasoline8% 7% Jet and Kerosene 6% Diesel 5% 4% Other Gasoil 3% 1% 24% 2% 25% 1% 9% 8% 7% 6% 5% 4% 3% 28% 1% 7% 64% Other Power Chemicals Heavy Fuel Oil Other Products 2% 1% % 9% 5% 8% 2% 1% % Transportation By Product (vol%) By Sector (wt%) Source: IEA data, 27

7 The Peak Oil debate

8 OPEC Middle East Membership Saudi Arabia Kuwait United Arab Emirates Iran Iraq Qatar The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization. Amongst other objectives, it aims to ensure the stabilization of prices in international oil markets. South America Ecuador Venezuela Africa Algeria Angola Libya Nigeria 1st OPEC Conference, Baghdad, September 1 14, 196

9 OPEC: crude oil cost of supply curve Cost OPEC Non-OPEC Crude Type

10 Supply shocks

11 Oil Producers Top 1 oil producers (29) Other MENA oil producers (vs UK) Mb/d = OPEC members Russia Saudi Arabia US Iran China Canada Mexico UAE Iraq Kuwait Mb/d Algeria Libya UK Qatar Egypt Syria Yemen 2.5. Source: includes data from the BP Statistical Review of World Energy 21

12 How is oil the same as other commodities? Industrial production Commodity prices Index: Jan7=1 Index: Jan7= Food 13 Developing 21 Metals Oil Developed* 9 8 Jan-7 Jan-8 Jan-9 Jan-1 5 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Source: CPB, CRB, Thomson Reuters * OECD excluding Turkey, Mexico, Korea and Central European countries

13 Making Sense of the Oil Market What makes oil different? Trends in oil consumption, production and reserves Putting together an oil supply & demand balance Assessment of the market

14 Oil consumption and GDP Annual consumption GDP Mb/d $US29, trillions Non-OECD OECD 6 Non-OECD OECD Source: includes data from the BP Statistical Review of World Energy 29

15 Oil production history Non-OPEC production OPEC production Mb/d E Mb/d E Biofuels FSU Asia Pacific Africa Middle East Europe S&C America North America Source: includes data from the BP Statistical Review of World Energy 21

16 Non-OPEC production growth by category Cumulative Growth Since 199 Mb/d 5 Conventional 5 Mb/d Unconventional CTLs+GTLs Biofuels Syncrude Oil Sands Conventional

17 OPEC: spare capacity Spare capacity as a share of global oil production Saudi Arabia Other GCC3 Other Global oil production (rhs) 18% 16% 14% 12% 1% 8% 6% 4% 2% Mb/d %

18 Global oil reserves Bn bbls Other Oil Sands Other OECD FSU OPEC Oil reserves Reserve-to-Production ratios Years Source: BP Statistical Review of World Energy 29

19 Recap Non-OECD oil consumption expected to overtake the OECD in 215. OECD oil consumption has fallen for the last 4 years Non-OPEC supply growth slowing with growth only from the FSU and high cost oil such as Biofuels and Canadian Oil Sands. OPEC maintaining substantial spare capacity, thus sufficient global supply available. Oil reserves continuing to be replaced, maintaining 4+ years worth of production, despite expanding consumption.

20 Making sense of the oil market What makes oil different? Trends in oil consumption, production and reserves Putting together an oil supply & demand balance Assessment of the Market

21 Putting together supply & demand balance Forecast consumption key inputs GDP, end user prices Forecast Non-OPEC supply Take a view on OPEC policy Analyse effect of supply and demand on inventories

22 Sensitivities in oil consumption growth Mb/d Sensitivity to Economic Growth Mb/d Sensitivity to Price % higher 1.6 $2/bbl lower Assuming global growth of 3.3%.5% lower Assuming average price of $9/bbl $2/bbl higher growth forecast.5% change in GDP growth 211 growth forecast $2/bbl price change

23 US gasoline demand growth and retail prices Pre-recession Post-recession Kb/d (year-on-year) $/gal Kb/d $/gal Retail prices (RHS) Retail prices (RHS) Jan-7 Jul-7 Jan-8 Jul Jan-1 May-1 Sep-1 Jan-11 2.

24 US GDP growth pre and post-recession Quarterly GDP growth (year-on-year) 3.5% 3.% 2.5% 2.% 1.5% 1.% 1Q1 1Q7 1Q11F 2Q8.5%.%

25 Subsidies and oil consumption Extent of Non-OECD Subsidies Global Growth Non-OECD Growth % of Non-OECD consumption Mb/d Mb/d Subsidisers Taxers Subsidisers Taxers '6 '7 '8 '9 '6 '7 '8 '9

26 Ratio of oil demand to GDP growth Average Oil Consumption Growth (%) : GDP Growth (%) Ratio (average oil price $37/bbl) (average oil price $74/bbl) High Subsidies (>3% of cost) Low Subsidies Low Taxes High Taxes (>3% of cost)

27 Oil consumption growth set to slow Economic and Oil Consumption Growth Mb/d, y-o-y +7 Kb/d from cold OECD weather and Chinese electricity rationing %, y-o-y projection 4Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q11 4Q11 N. America Other OECD China Other non-oecd Global GDP (rhs) Global Consumption

28 Non-OPEC production growth slowing Mb/d, year-on-year 2 Non-OPEC production growth 1 Forecast Other ROW Biofuels Other OECD FSU US Net -1 1Q1 3Q1 1Q11 3Q11

29 Oil supply/demand balance for 211 Mb/d 88. Production changes in 211 Consumption changes in Inventory draw or OPEC-11 crude Supply 21 Demand 86. Non-Quota Non-OPEC OPEC* growth growth.7 Mb/d Gap OECD decline Non-OECD growth * Includes OPEC NGLs and Iraq

30 OECD inventories falling Mbbls 29 OECD onshore commercial inventories Range Outlook (OPEC Status Quo) 1 Mb/d OPEC output increase Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov

31 OPEC supply management y-o-y growth (Mb/d) $/bbl 4 Global Consumption Non-OPEC 14 3 OPEC (Crude + NGLs) Dated Brent (rhs) Q8 4Q8 2Q9 4Q9 2Q1 4Q1

32 OPEC policy: reading between the lines Quotes from Saudi s oil Minister Ali Al Naimi 8-Sep-9 (Brent $69/bbl): "the price is good for everybody with a price ranging between $68 and $73, what else do you want?" 7-Dec-9 ($76/bbl): The price is perfect,, "The market is stable right now, volatility is at a minimum." 17-Mar-1 ($8/bbl): Good demand, reliable supply, beautiful prices we are very happy, 8-Jun-1 ($71/bbl): I think that the price will stay in this ideal realm of $7-8 a barrel.. There was a general consensus (between producers and consumers) that this is a fair price. 1-Nov-1 ($84/bbl): If the price were to go significantly below $7/b, I do not believe that renewables would be competitive with fossil fuels. And so the countries are quite satisfied that it is above $7 but hopefully less than $9,, That, in my opinion, is what is holding the price up there in the range, not so much demand. 12-Dec-1 ($9/bbl): "Why do you want to disturb the market?. "The market is in balance. Everybody is happy. 24-Jan-11 ($97/bbl): 211 "might mark an important turning point" in terms of the influence of emerging economies on oil markets. Weaker output growth from non-opec countries "will give OPEC countries an opportunity to boost their supplies to the global market to meet the rising global demand, Naimi quoted by Dow Jones Newswires 22-Feb-11 ($17/bbl): OPEC is ready to meet any shortage in supply when it happens, 23-Feb-11 ($11/bbl): "What I would like you to convey to the market is this: Right now there is absolutely no shortage of supply,", "When we see a shortage in supply, we will rectify that immediately. We have the means, we have the capacity, we have the crude reserves."

33 Summary: Assessment of the market Oil consumption growth slowing after rebound in 21 Non-OPEC supply growth expected to stagnate this year The market would tighten, applying upwards pressure to prices unless OPEC increase production OPEC well in control and appear to be comfortable with oil prices between $7 and $1.

34 Making Sense of the Oil Market Also see: