OIL PRICE OUTLOOK FEBRUARY 2017

Transcription

1 US OIL PRICE OUTLOOK FEBRUARY 2017

2 Key Messages 1. OPEC output deal may have a limited impact on prices. Despite signs of compliance, implementation and monitoring is challenging in some countries 2. Going forward, inventory correction and the lagged effect of CAPEX cuts should lead to higher prices 3. The recovery of U.S. shale production is expected to prevent a steep upturn in prices; nevertheless, there is uncertainty on the extent and speed of the rebound 4. Little to no upside from demand. Demand growth continues to be supported by emerging markets and the U.S., but it has eased 5. Slow recovery and convergence to $60/bbl, which would be a sweet spot for both consumers and producers 2

3 09/20/16 09/27/16 10/04/16 10/11/16 10/18/16 10/25/16 11/01/16 11/08/16 11/15/16 11/22/16 11/29/16 12/06/16 12/13/16 12/20/16 12/27/16 01/03/17 01/10/17 01/17/17 01/24/17 01/31/17 02/07/17 U.S. OIL PRICE OUTLOOK FEBRUARY 2017 OPEC OPEC DEAL OPEC deal carries prices back above $50/bbl Deal should be seen as an effort to stabilize the market Rather than triggering a rapid and sustained increase in prices, cuts imposed an effective price floor BRENT CRUDE OIL PRICES $ per barrel OPEC Meeting 40 Source: BBVA Research & Haver Analytics 3

4 OPEC FUTURES Futures rise as markets perceive that OPEC has retaken its role of market stabilizer WTI CRUDE FUTURES $ per barrel 60 BRENT CRUDE FUTURES $ per barrel /09/17 1 month ago 3 months ago 6 months ago /09/17 1 month ago 3 months ago 6 months ago Months Ahead Months Ahead Source : BBVA Research & Bloomberg 4

5 OPEC OPEC MONITOR January was first big test for OPEC production deal, with estimated compliance more than halfway to target OPEC PROGRESS TOWARDS PRODUCTION COMMITMENTS* Production Cut Goal (K, bbl/d) Goal Achieved? Status Update Saudi Arabia 486 Estimated cuts of 500K bbl/d, surpassing target Iraq 210 (120) Kurdistan region unwilling to cooperate with cuts; difficulties in lowering output without triggering contractual obligations to pay IOCs UAE 139 Estimated cuts of 160K bbl/d, surpassing target Kuwait 131 Estimated cuts of 150K bbl/d, surpassing target Venezuela 95 (70) Angola 78 (0) Announced in late December that cut would be implemented starting Jan. 1, but then Maduro announced plan to stabilize oil prices State oil company has announced output cuts in accordance with deal Algeria 50 Estimated cuts of 70K bbl/d, surpassing target Qatar 30 (5) Ecuador 26 (20) Started informing customers in December of supply cuts starting Jan. 1 Reduction to be result of allowing production at mature oil fields to fall; peak reductions to occur in March and April Gabon 9 Estimated cuts of 15K bbl/d, surpassing target; rejoined OPEC in July; faced falling oil production last year, headlined by a large-scale strike by oil workers *No production adjustment for Libya or Nigeria; Proposed production increase of 90K for Iran Source: BBVA Research, Bloomberg & news sources 5

6 OPEC NOPEC MONITOR Bulk of non-opec production cuts to come from Russia, but achievement of goal will take time NON-OPEC PROGRESS TOWARDS PRODUCTION COMMITMENTS Production Cut Goal (K, bbl/d) Goal Achieved? Status Update Russia 300 (117) Surpassed Jan. goal of 50K; expect to reach 300K by end of 1H2017, but has announced increase in oil exports in 2017 Mexico 100? Reduction to be result of allowing production at mature oil fields to fall Oman 45? Energy minister said that daily production quotas for oil producing companies have been set, but that country will maintain production of 1M bbl/d this year. Azerbaijan 35 Began implementing production cuts on January 1. Energy minister said output had been cut to 789K in Jan Kazakhstan 20 Energy ministry stated that commitment had already been met, but plans to increase output in 2017 Malaysia 20? State oil firm to implement cuts starting in January; 2 nd straight year of production decline Equatorial Guinea 12? Applied to join OPEC Bahrain 10? No status update South Sudan 8 In the process of doubling crude production after 2 year halt Brunei 4? No status update Sudan 4? No status update Source: BBVA Research, Bloomberg & news sources 6

7 OPEC SUPPLY Upside risks from Libya and Nigeria remain subdued OPEC: CHANGE IN CRUDE OIL PRODUCTION BY COUNTRY YoY, million barrels per day Nigeria Libya Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Source: BBVA Research & Haver Analytics 7

8 OPEC OPEC DEAL OPEC could decide to extend its production quotas in 2H17, but some members say this may be unnecessary CRUDE OIL SUPPLY Million barrels per day SUPPLY AND DEMAND BALANCE OPEC (lhs) Non-OPEC (rhs) Stock Change Needed To Balance (Mil b/d, 6-mo moving average) European Free Market Price: Brent Crude Oil ($/Barrel, rhs) Source: BBVA Research & Haver Analytics 8

9 OPEC SUPPLY A more competitive environment will continue to hinder the ability of OPEC to stabilize the market NET ADDITIONS IN GLOBAL LIQUIDS SUPPLY BY SUPPLY SEGMENT GROUP YoY, million barrels per day Forecasts OPEC Other Onshore Shale/Tight oil Oil sands Offshore shelf Offshore midwater Offshore deepwater Total Supply Non-OPEC Source: Rystad Energy UCube; production forecasts could differ from BBVA Research baseline based on variance in assumptions 9

10 USA INVENTORIES Signs of a more balanced market will emerge as inventories continue to decline U.S. STOCKS OF CRUDE OIL EXCLUDING SPR EOP, million barrels GLOBAL OIL INVENTORIES EOP, million barrels Oil Inventories: OECD (EOP, Mil.Bbl) Oil Inventories: Non-OECD (EOP, Mil.Bbl) Source: BBVA Research & Haver Analytics 10

11 USA CAPEX Shale producers to increase CAPEX in response to upturn in prices CAPITAL AND OPERATING EXPENDITURES FOR U.S. SHALE OIL Billion USD Opex Exploration Capex Capex Slowdown in capital spending resulted from a weak price environment Many shale companies covering CAPEX with cash flows, moving away from strong reliance on debt CAPEX expected to rise this year, especially as larger U.S. companies spend on drilling and completing wells Source: Rystad Energy UCube 11

12 USA U.S. RECOVERY Economics of fracking continue to remain favorable ASSET BREAKEVEN OIL PRICE BY SHALE PLAY, PRODUCING USD/bbl, Brent-linked Average Oil Price (2/8/17) Source: Rystad Energy UCube & Haver Analytics 12

13 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 U.S. OIL PRICE OUTLOOK FEBRUARY 2017 USA U.S. RECOVERY Recent production gains explained by uptick in completed wells U.S. ACTIVE RIG COUNT AND CRUDE OIL PRODUCTION U.S. RATIO OF DCU TO COMPLETED WELLS Units US Weekly Crude Oil Field Production (Thous. Barrels/Day) Baker Hughes Active Rig Count: US (Units, rhs) Bakken Haynesville/Bossier Niobrara Permian Midland Tight Eagle Ford Marcellus Permian Delaware Tight Utica Source: BBVA Research & Haver Analytics Source: Rystad Energy UCube 13

14 USA POLICY Trump s America First Energy Plan: Make oil & gas great again Corporate Tax Reform Destination Based Cash Flow Tax (DBCFT) would lower corporate tax rate to 20% U.S. oil industry incentivized to export more crude oil and products and import less; refiners would shift toward domestic crude sourcing Keystone and Dakota Access Pipelines Advancing pipelines is expected to decrease costs of moving oil to refineries and lower breakevens However capacity to generate further investments in oil and gas will be challenged by the current levels of oil prices Deregulation Withdrawal from CPP, COP21; elimination of Climate Action Plan Suspending social cost of carbon calculation Possibility of turning over federal lands to local control, which could facilitate drilling Source: S&P Global Platts, The Brattle Group, White House, Bloomberg 14

15 DEMAND DEMAND Non-OECD countries expected to lead demand in long-term, despite signs of slowing growth OIL PRODUCT DEMAND YoY % change, million barrels per day Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Western Europe United States China India Total World Source: BBVA Research & Haver Analytics 15

16 U.S. OIL PRICE OUTLOOK FEBRUARY 2017 DEMAND CHINA China's rebalancing and transition to a cleaner economy may result in slower growth of demand for fossil fuels CHINA: OIL PRODUCT DEMAND AND INDUSTRIAL PRODUCTION YoY % change CHINA: CRUDE AND TOTAL PETROLEUM PRODUCTS INVENTORIES EOP, million barrels 25% 20% Industrial Production Oil Product Demand Crude Oil Total Products (rhs) % 10% % % Source: BBVA Research & Haver Analytics 16

17 DEMAND ELECTRIC VEHICLES Improvements in lithium-ion batteries could make electric vehicles cost competitive by 2020 U.S. NEW PLUG-IN VEHICLE SALES Thousands PHEV* BATTERY ENERGY COST AND DENSITY $USD/kwh & Wh/L 25 $1, $1,000 Battery Cost Energy Density $ $ $ $ $ Source: BBVA Research & Electric Drive Transportation Association *PHEV = Plug-in hybrid electric vehicle Source: BBVA Research & U.S. Department of Energy, International Energy Agency 17

18 FORECASTS OIL PRICE FORECASTS Slight upward revisions to 2017 and 2018 figures CRUDE OIL PRICE FORECASTS Brent, $ per barrel, avg CRUDE OIL PRICE FORECASTS Brent, $ per barrel, avg Baseline Upside Downside Actual Upside Risk Baseline Downside Risk Source: BBVA Research & Haver Analytics 18

19 FORECASTS EXCHANGE RATE Prices are expected to move above our previous baseline, but increases could be limited by a strong dollar OIL PRICES AND U.S. DOLLAR Trade-Weighted Exchange Rate, $ (Jan-97=100) Brent ($/bbl, rhs) Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Source: BBVA Research & Haver Analytics 19

20 FORECASTS SUPPLY More than half of liquids from new supply sources are expected to be commercial below $60/bbl GLOBAL LIQUIDS PRODUCTION BY LIFE CYCLE AND BREAKEVEN PRICE Million barrels per day Forecasts Undiscovered Above Below 20 Non sanctioned projects Under development Producing Source: Rystad Energy UCube 20

21 Breakeven Oil Price, USD/barrel U.S. OIL PRICE OUTLOOK FEBRUARY 2017 FORECASTS SUPPLY $60/bbl would make several projects profitable again, but high-cost producers would still be out of the market COST OF SUPPLY CURVE Producing Onshore Middle East Extra heavy oil Shelf North American Shale Ultra deepwater Row onshore Russia onshore Deepwater Oil sands Weighted average breakeven ,020 1,120 1,220 Remaining resources as of 2016, Million bbl Source: Rystad Energy UCube 21

22 US OIL PRICE OUTLOOK FEBRUARY 2017