Predicting Oil Prices Thina Margrethe Saltvedt, Senior Analyst Macro/Oil November 2012 @ThinaSaltvedt
Oil price drivers Financial markets Commercial/Non-commercials USD Asset prices Liquidity injections Risk Appetite Short/Medium term Inventory levels OPEC goals and disipline Weather Refinery capacity Income development Geopolitical risk Long-term Supply/Demand OPEC target price and spare capacity Non-OPEC peak production Emerging Markets demand growth Renewable energy and regulatory changes Oil intensity Technological changes Source: PIRA, Nordea Markets 2 1 December, 2012
Nordea: Brent oil price forecast in USD per barrel 04/09/2012 Q1 Q2 Q3 Q4 Year 2011 106 115 112 110 111 2012E 118 109 112 109 112 2013E 108 110 112 114 111 2014E 114 114 116 116 115 3
USD/bbl Forward curve: Large fluctuations in short term contracts «Speculators» have cut their long oil bets to a two year s low March 160 140 Managed Money net positions vs. WTI price 350,000 300,000 Now Nov 2011 120 100 80 60 40 250,000 200,000 150,000 100,000 Late June 20 0 20Nov07 20Nov09 20Nov11 WTI Net positions, rhs 50,000 0 Sources: Bloomberg, Ecowin Reuters, CFTC 4
High oil prices and a weaker EUR vs USD Liquidity injections can influence oil prices through higher expected growth or inflation 150 USD/barrel EUR/USD 1.7500 140 130 Poltical risk and Euro crisis 1.7000 1.6500 120 110 Inflation worries Risk appetite on/off 1.6000 1.5500 100 1.5000 90 1.4500 80 70 60 50 40 30 Crude Oil Brent, blue EUR/USD, dark blue 05 06 07 08 09 10 11 12 1.4000 1.3500 1.3000 1.2500 1.2000 1.1500 5
mb/d USD/bbl Oil exporters budget breakeven oil prices to increasingly affect oil price formation Oil market searches for price required for next trillion barrels 140 120 100 80 60 40 20 0 USD/barrel 2007 2009 2011 2012 6 5 4 3 2 Implied OPEC effective spare capacity and Brent price forecast World runs out of spare capacity 109 112 109 140 120 100 80 60 1 40 0 4Q2002 2Q2004 4Q2005 2Q2007 4Q2008 2Q2010 4Q2011 20 Effective spare Effective spare (f'cast) Brent 1.pos, rhs Brent (f'cast), rhs 6 Source: PIRA, IEA, Nordea Markets
Thousand barrels per day 10 largest oil exporter in the world today may have a net export deficit in 2017 who will cover the gap? Azerbaijan Kazakhstan Canada Qatar Algeria Venezuela Norway Angola Iraq Nigeria Kuwait UAE Iran Russia Saudi Arabia 1600 1200 800 400 0-400 -800-1200 Changes in export volumes in 2017 from 2011 15 largest oil exporters in the world - only 2 politically stable 0 2 4 6 8 10 Million barrels per day 7 Source: IEA, EIA and Nordea Markets
Worldwide upstream oil and gas investment and upstream investment cost index Source: IEA 8
Do we see a supply response after all?
Shale oil revolution counterbalance supply disturbances outside OPEC 17.5 USD per mmbtu USD per barrel 150 15.0 12.5 Natural Gas Henry Hub, lhs Natural gas Oil 125 100 10.0 75 7.5 5.0 50 2.5 25 WTI light sweet crude, rhs 0.0 90 92 94 96 98 00 02 04 06 08 10 12 0 Source: Reuters EcoWin 10 Source: PIRA and Reuters Ecowin
Global unconventional oil: average production cost curve More expensive oils replace natural decline of conventional oils Source: IEA 11
World oil supply still fields yet-to-be found to cover expected future oil demand growth Source: IEA 12
World offshore crude oil production Deepwater production moving up on the agenda Gulf of Mexico, Brazil and West Africa From 4.8m b/d in 2011 to 8.7m b/d in 2035 Gulf oil exploration seeing steady recovery. Before: 30% of US oil production. Now: 20%, next ten years rise to 28% Source: IEA, Subsea7 13
World oil demand by sector : Transportation sector accounts for 52% of total oi demand expected to rise to 60% by 2035 Source: IEA 14
Contact details: Thina Margrethe Saltvedt Senior Macro/Oil Analyst Commodities Research Nordea Markets Phone: +47 22 48 79 93 Mobile: +47 90 63 40 75 Thina.margrethe.saltvedt@nordea.com @ThinaSaltvedt 15
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