Oil Market Outlook The world has changed

Transcription

1 Oil Market Outlook The world has changed The DNB oil story in pictures & graphs January Torbjørn Kjus

2 Conventional vs Unconventional The World Has Changed - Moving to the kitchen instead of the living room (Source: USGS) 2

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4 Shale Crude Output Growth Has Been Offset By Outages - Shale crude production growth is starting to catch up What happens next three years with unplanned outages?? Growth In Unplanned With This Outages Enormous Have Growth More In Than Shale Offset Oil Production: Shale Crude Output - why is that are sustainable not oil prices also below gowing 100 forward? $/b already? kbd Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 US shale crude production Change unplanned US disruptions shale crude since production 2010 US FWD shale crude production Unplanned US FWD disruptions shale crude FWD production Source: PIRA Energy, DNB Markets 4

5 IEA s Forecasts For US Production Growth Far Too Low So Far - IEA s first take on 2012 US production growth was at 45 kbd - now 2012 growth is estimated to have been 1.04 million b/d - For 2013 the forecasted growth was 479 kbd, now the number is revised up to 1.14 million b/d - For 2014 the initial estimate was 700 kbd, now the estimate is revised up to 1.51 million b/d 1600 IEA Forecasted YoY Growth In US Liquids Production Kbd Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: IEA Monthly Oil Market Reports

6 Nobody Were More Bearish Than DNB In October - But we were not bearish enough 6

7 Long Term Oil Price Forecast Current (The forecast is for the average of the rolling 1 st month ICE Brent future contract) Historical Historical Nominal $/b Real (2015) $/b Forecast Forecast Nominal $/b Real (2015) $/b Q Q Q Q $/b Spot Brent History & FWD looking FWD (nominal) Forecast nominal Source: Reuters, DNB Markets Historical Forecast real (2014 USD) 7

8 What Is Different From The 2012-Correction - Deeper and longer drop now and the key difference is the contango which suggest a much weaker physical market than in Brent 1st Month Future Days below 100 $/b $/b Days 2012 spring correction 2014 downturn Source: Reuters Daily QLCOc1, QLCOc3 Price USD Bbl Spread, QLCOc1, Trade Price(Last), QLCOc3, Trade Price(Last), 1.0, /01/2015, Line, QLCOc1, Trade Price(Last) 26/01/2015, /07/ /06/2015 (LON) Value USD Bbl Auto Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Auto 8

9 The Market Has Been Over-supplied Through The red line is our view on DNB Markets World Oil Supply-Demand Balance (time phased) Million b/d Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IEA, DNB Markets 5 ye ar ran ge 5 ye ar avg

10 How Can Anyone Doubt That The Market Is Over Supplied? - Global oil stocks (excl. Chinese strategic stocks) are building massively. This is a function of supply being larger than demand Global Crude & Product Stocks - JODI-data JODI-data are adjusted for countries w ith irregular reporting - and China is added w ith Xinhua New s Agency Data Million barrels Source: JODI, DNB Markets Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

11 The Saudi Royal Family (Source Wikipedia) Abdul Aziz (Ibn Saud) King: Founded Saudi Arabia in wives (4 at a time) 45 sons of which 6 have been kings King Saud King: Forced out Crown Price Sultan Died King Faisal King: Killed King Khalid King: Heart Attack Crown Price Nayef Ultra conservative 23 rd son of Ibn Saud Full brother of King Fahad Died King Fahad King: Stroke King Abdullah King: Regent since 1995 Unifying and popular 6 sons New Crown Price Muqrin 70 years old, 35 th and youngest surviving son of Ibn Saud Mother from Yemen (18 th spouse of Ibn Saud) Was an air force pilot educated at Britain RAF College in Cranwell In favour of sanctions instead of military action vs Iran Appreciated by the Saudi public, no corruption or negative activities Believed by many to be a liberal within the family New Deputy Crown Price bin Nayef 58 years old, son of late Crown Prince Nayef Educated in the US - Political Science The most pro-american Saudi minister First successor from the third generation Has 6 sons King Salman 80 years old Full brother of King Fahad 25 th son of Ibn Saud Well regarded Trusted mediator Had a stroke in 2010 Pro economic reforms, but slow for social reasons Has 11 sons 11

12 We Are Not Set To Return To The Trend Line - All the changes to oil demand in recent years are not all cyclical, there are also structural elements to them like efficiency improvements and substitution % annual growth Global Oil Demand (12-m onth mavg) Million b/d % annual growth 55 1Q1986 1Q1990 1Q1994 1Q1998 1Q2002 1Q2006 1Q2010 1Q2014 1Q

13 Better Oil Demand Growth At Prices Below 100 Dollars Oil Above 100 Dollars Negatively Affects Demand Growth % % Oil Price Real Terms % 1.5% 1.0% Oil Demand Growth % % % Source: BP stats, IEA, DNB Markets Real oil price (LHS) Demand growth 5-year mavg (RHS) 13

14 Reduced Oil Burden May Support Oil Demand Growth - The lower oil burden may increase the oil intensity back to 0.4 from 0.2 in 2014 (oil demand as a factor of GDP-growth) Oil Demand Change Per Unit Real GDP Change (oil intensity) vs Oil Burden (Average: last 20 years is 0.4, last 10 years is both excluding ) 1.0% 1.5% Oil Intensity % 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Global Oil Burden % Source: BP stats, IEA, IMF, DNB Markets Oil Intensity 5-year mavg - LHS Oil Burden - RHS 14

15 US Oil Demand Improving On Lower Oil Prices - Gasoline demand very strong since the autumn People driving more coupled with lower fuel efficiency US Gasoline Demand 4 week mavg (Product Supplied) 22.0 US Total Demand (Product Supplied) Million b/d Million b/d Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 17.0 Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: US DOE Range 5 year avg Source: US DOE Range 5 year avg Million b/d US Distillate Demand 4 week mavg (Product Supplied) Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million b/d US Demand 4 Main Products (4 week mavg) (Product Supplied: Gasoline, Distillates, Jet, Residual Fuel) 13.0 Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: US DOE Range 5 year avg Source: US DOE Range 5 year avg

16 Chinese Oil Demand Growth Improving - Gasoline demand growth still strong and diesel on the mend after infrastructure projects 1.5 Year on Year Calculated Chinese Demand (Demand is refinery runs plus net product imports. Figures are adjusted for inventory changes since Feb 2009) Million b/d Jan-01 Feb-03 Mar-05 Apr-07 May-09 Jun-11 Jul-13 Aug-15 Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics 16

17 CAPEX Guided Down 28% - Rig Count Guided Down 42% - Production guided to rise 10%, but we think CAPEX guiding and rig count will drop even more than guided below Source: US Capital Advisors 17

18 Prices Have Reached Unsustainable Levels For Shale - Will the shale players be able to service their debt and continue to invest at 50 $/b WTI prices? Lifting costs in $/b (including some G&A costs) 12 Interest rate: 5% WTI price ($/b) 50 NGL's price as percentage of crude price: 50% Company name: EOG Chesapeake Pioneer Whiting Continental Concho Noble Cimarex Crescent Oasis Average Crude production kbd Crude diff average to WTI in Q2/Q3 ($/b) Achieved crude price at assumed WTI price $/b Revenue from crude sales million USD 5,802 1,872 1,547 1,452 1,981 1,148 1, , ,929 NGL's production kbd NGL price $/b Revenue from NGL's sales million USD 1,248 3, Natural gas production (million cubic meters/day) Natural gas price $/cm Revenue from natgas sales million USD 1,387 2, Revenue pr year million USD 8,437 7,208 2,076 1,553 2,503 1,559 3,310 1,451 2, ,109 Total production in oil equivalents Lifting costs 2,847 3, , ,234 Long Term debt by Q (million USD) 5,910 11,592 2,662 2,753 5,834 3,378 5,621 1,500 2,583 2,550 4,438 Interest rate costs 2015 (million USD) Total Debt Ratio (Q3-2014) 49% 60% 46% 56% 67% 53% 53% 49% 36% 69% 54% Calculated free cash flow 2015: 5,295 2,993 1, , , , ,653 CAPEX ,350 5,104 3,494 2,920 4,593 2,483 4,849 2,122 2,023 1,380 3,732 Calculated change in CAPEX for ,055-2,111-2,427-2,052-3,257-1,619-3,200-1, ,079 Debt/Free cash flow Calculated decrease in CAPEX if no new debt 37% 41% 69% 70% 71% 65% 66% 72% 27% 72% 59% 18

19 Horizontal Rig Count Must Drop Going Forward - The process has just started US horizontal oil rigs 300 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: Baker Hughes, PIRA Energy 19

20 A Drop In The Rig Count Could Lead To Lower Output - Unlike the 2012/13-period we now look to need more rigs to grow output as output per rig is growing more slowly in Shale oil production vs horizontal oil rigs (since 2011) 3800 Shale oil production vs horizontal oil rigs (latest year) y = x R² = Thousand b/d Thousand b/d Total US horizontal oil rigs Source: US DOE, Baker Hughes rig count, DNB Markets Total US horizontal oil rigs Source: US DOE, Baker Hughes rig count, DNB Markets US shale crude oil production per horizontal oil rig Thousand of b/d Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: US DOE, Baker Hughes, DNB Marklets 20

21 The Adjustment Will Not Be Without Pain For Many Players - The tone is set - CAPEX in the oil industry will be lowered A lot!!! 21

22 Prices Can Recover Before The Supply-Demand Balance is a good example Oversupplied through the first half but prices rising from 40 $/b to 70 $/b from January to July DNB Markets World Oil Supply-Demand Balance (time phased) 1.0 Million b/d Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IEA, DNB Markets OECD Total Oil Industry Stocks (IEA-data) Brent Price $/b OECD Oil Stocks Million Barrels Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Source: IEA, Reuters Brent Price OECD Oil Stocks 22

23 Not Only Spot Prices Recovered Before The S/D-Balance - We think the same thing will happen during 2015 The oil price will start to recover before the S/D-balance is fixed $/b Historical Brent Forward Curves (The whole strip moved upwards in 2009) Strip up almost $/b Source: Reuters, DNB Markets Historical spot price 24-Dec Jul-09 23

24 Spare Capacity Still Much Lower Than In The 1980 s - An equally long period with low prices as in the s should not be the most plausible scenario 12 Global Spare Capacity Spare Capacity - Million b/d Source: BP stats, IEA, PIRA Global Spare Capacity 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: BP stats, IEA, PIRA 24

25 CONTACTS & DISCLAIMER Oslo, Sales & Trading London, Sales Oslo, Research Nils Fredrik Hvatum Ane Tobiassen +44(0) Torbjørn Kjus Fredrik Sagen Andersen Singapore, Sales Karl Magnus Maribu Jesper Meyer Hatletveit Seng Leong Ong Nils Wierli Nilsen New York, Sales Andre Rørheim Kenneth Tveter Erik Warren This note (the Note ) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank ), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. 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