The Outlook for Physical and Paper Oil Markets in 2009

Transcription

1 The Outlook for Physical and Paper Oil Markets in 29 New York Energy Forum, January 7, 29 Antoine Halff

2 Cyclical vs. Structural Market shifts beg the question: structural (long-term trend, paradigm shift) or cyclical (mean reversal)? 2-1: new paradigm of slowing demand growth & falling prices -- high-tech revolution, energy/gdp decoupling 23-1H28: new new paradigm of ever-rising prices -- End of Oil (peak oil, above-ground risk), runaway demand growth (China), oil as asset class (commodity indexes, hedge funds) 2H28-?? New new new paradigm?? Demand destruction & post-oil economy, or new supply crisis in the making? 2

3 Die-hard bullish view Price rally as structural bull market: growing wedge between runaway demand (primary driver) and increasing supply scarcity Sell-off seen as temporary, driven by cyclical economic downturn Supply concerns, for from assuaged, are reinforced by the downturn: low price + credit crunch seen as deterring needed investment in production capacity The lower prices fall today, the higher they will rebound tomorrow 3

4 A more likely scenario Supply scarcity reflects a mix of structural and cyclical components. Above-ground risks are market-driven. The market has turned the corner on resource nationalism Current demand downturn likewise reflects a mix of structural and cyclical drivers. Some demand destruction will stick. US oil demand has peaked. Demand in emerging economies is set to slow Corn ethanol policy overhaul is overdue but fuel switching, alternative energy and cleantech are here to stay, will gain momentum 4

5 The myth of a demand-driven rally US dollars % 2% % -2% Source: IEA -4% -6% % Increase in international oil price Change in oil demand (right axis) IEA: Oil demand much less responsive to price hikes than in the past partly due to the impact of subsidies & diminishing scope for substitution in end uses 5

6 Demand downturn didn t start with Lehman s exit thousand bpd One off spike led by 12 IEA estimate of global demand growth China powergen shortfall WTI prices Average annual growth : 1.7 mb/d USD/barrel Average annual growth 25-7: 1.16 mb/d 25-8: 9 kb/d no compelling evidence of demand growth acceleration 6

7 Off-shoring oil demand growth Annual change in Non-OECD total oil demand 3,4 Non-OECD OECD Source: IEA Three years of growth 2,4 thousand bpd 1,4 4 (6) (1,6) (2,6) 3Q1996 3Q1997 3Q1998 3Q1999 3Q2 3Q21 3Q22 3Q23 3Q24 3Q25 3Q26 3Q27 3Q28 7

8 Global demand slowdown set to continue in 29 IEA Dec 11, 28 OMR cuts demand growth forecast by 35, bpd for 28 and 26, bpd for 29 fourth consecutive cut (November cut 33, bpd for 28 and 67, bpd for 29) IEA Dec 11, 28 OMR Oil Demand Growth Forecast Current projections: World: - 22, bpd , bpd 29 OECD mln bpd 28-67, bpd 29 Non-OECD mln mdp mln bpd 29 thousand bpd OECD Non-OECD 8

9 Peak US demand a notion gaining currency Monthly US oil demand: total products EIA Monthly US oil demand: distillate EIA thousand bpd 22, 21, 2, 19, 18, 17, 16, range average thousand bpd 4,8 4,6 4,4 4,2 4, 3,8 3,6 3,4 3, range average Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Monthly US oil demand: gasoline EIA Monthly US oil demand: residual fuel oil EIA thousand bpd 1, 9,5 9, 8,5 8, 7, range average thousand bpd 1,2 1,1 1, range average Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov 9

10 US hurricane demand effects Monthly US oil demand: NGLs & LRGs EIA Monthly US oil demand: petrochemical naphtha EIA thousand bpd 3, 2,8 2,6 2,4 2,2 2, 1,8 1,6 1,4 1,2 Jan Mar May Jul Sep Nov range average thousand bpd Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec range average Monthly US oil demand: kerosene-type jet fuel EIA thousand bpd 1,9 1,8 1,7 1,6 1,5 1,4 1, range average Jan Mar May Jul Sep Nov 1

11 Global demand hit set to exceed expectations Economic forecasts downplay downturns Myth of US-China decoupling Vanishing US consumer s shoes way to big to fill Chinese demand outlook weaker than expected Destruction not suppression 11

12 Demand contraction past & present: Europe BP Statistical Yearbook 28 25, N. America S. & Cent. America OECD Europe FSU Middle East Africa Total Asia Pacific 2, thousand bpd 15, 1, 5,

13 Demand contraction past & present: Japan BP Statistical Yearbook 28 9, 7,5 China Australia China India Indonesia Japan thousand bpd 6, 4,5 3, 1,

14 Supply drivers Annual change in global oil supply Source: IEA 2, 1,5 OPEC Non-OPEC 1, thousand bpd 5 (5) (1,) (1,5) (2,)

15 Economics 11 revisited: High prices beget low supply Russia crude production growth vs Brent futures Bloomberg, IEA Russian supply growth ground to a halt when prices took off ' bpd Q Q1996 3Q1997 2Q1998 1Q1999 4Q1999 3Q2 2Q21 1Q22 Russia 4Q22 3Q23 2Q24 IPE Brent 1Q25 4Q25 3Q26 2Q27 1Q $/barrel Set the stage for resource nationalism worldwide Politics of oil empowerment Unburying the oil hatchet 15

16 The politics of production decline IEA Venezuela 5 Mexico Q1996 4Q1996 3Q1997 2Q1998 1Q1999 4Q1999 3Q2 2Q21 1Q22 4Q22 3Q23 2Q24 1Q25 4Q25 3 ' bpd 1Q1996 4Q1996 3Q1997 2Q1998 1Q1999 4Q1999 3Q2 2Q21 1Q22 4Q22 3Q23 2Q24 1Q25 4Q25 3Q26 2Q27 1Q28 3Q26 2Q27 1Q28-2 ' bpd Indonesia Nigeria Q1996 4Q1996 3Q1997 2Q1998 1Q1999 4Q1999 3Q2 2Q21 1Q22 4Q22 3Q23 2Q24 1Q25 4Q25 3Q26 2Q27 1Q28-5 1Q1996 4Q1996 3Q1997 2Q1998 1Q1999 4Q1999 3Q2 2Q21 1Q22 4Q22 3Q23 2Q24 1Q25 4Q25 3Q26 2Q27 1Q28-1 ' bpd ' bpd

17 Oil supply: from rent capture to market share Peak oil-nationalism? Falling prices and output undermine nationalistic stance Russia: oil tax cuts? Nigeria: Niger Delta fix? Mexico: constitutional reform? Venezuela: Russia to the rescue? OPEC s behind-the-curtains crisis Institutional stress Price management exposes divisions Market sell-off to test group s discipline OPEC downcycle Constraints on liberalization Costs Labor supply Unrest / social stability 17

18 Turning a corner on supply Non-OPEC: from nearly flat growth in 28 to +5, bpd 29 FSU (+23 kb/d) (Russia -15, bpd, Caspian +37, bpd) Brazil (+28 kb/d) China (+8 kb/d) US +3, bpd Canada +12, bpd OPEC NGLs +8, bpd (+3, bpd 28) OPEC Saudi Arabia: Demand destruction raising concerns on the economy, demand security Fuel substitution threatens oil s role in sustaining global economy Shaybah 25, bpd expansion Nuuayyim 1, bpd Khursaniyah 5, bpd + 3, bpd liquids Khurais 1.2 million bpd June 29? Manifa 9, bpd heavy crude mid-211 Zuluf / Safaniyah /Berri 9.7 million bpd production July million bpd capacity end million bpd 18

19 Midstream from crunch to bulge Tight refining capacity was key driver of high prices Tug-of-war between refiners and suppliers helped inhibit OPEC upstream investment Demand crunch + East-of-Suez expansion restore slack in system Peak refining capacity in the US and Europe? Surging refining capacity expansion: Middle East India China Petrobras OECD increasingly off-shoring refining/growth in global product trade Non-OECD demand growth: impact on demand seasonality Redistribution of demand growth opens opportunities for arbitrage and trade Market depth & flexibility Oil market triangulation 19

20 Political risk Social stability in producer countries a concern But risk of military confrontation in Iran declines in a low-price environment 2

21 US ethanol running out of space US East Coast ethanol penetratrion: domestic gasoline output US Midwest ethanol penetratrion: domestic gasoline output % of gasoline w ith ethanol % of ethanol-free gasoline % of gasoline w ith ethanol % of ethanol-free gasoline Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 US Gulf Coast ethanol penetratrion: domestic gasoline output US West Coast ethanol penetratrion: domestic gasoline output % of gasoline w ith ethanol % of ethanol-free gasoline % of gasoline w ith ethanol % of ethanol-free gasoline Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 21

22 .. But alternatives prospects may rise in a low-price market Import substitution pressure looks set to ease Energy demand growth goes south More supply Lower prices Ethanol backlash US and global crisis in renewable policy Renewed interest in export maximization Lower prices to rekindle quest for market share and volume growth Supply growth recovery Interest in export maximization 22

23 The age of non-conventional gas 61, US natural gas marketed production Source: US EIA 59, 57, Mmcf/day 55, 53, 51, 49, 47, 45, 23-7 range average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 23

24 US natural gas demand resilience Total US natural gas demand Source: US EIA 95, 9, Mmcfd 85, 8, 75, 7, 65, 23-7 range 23-7 average , 55, 5, 45, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 24

25 De-leveraging: oil market impact NYMEX WTI Open Interest v. Price 1,6, 1,4, 1,2, 1,, 8, 6, 4, 2, - Oct-3 Jan-4 Apr-4 WTI long Open Interest (ls) wti w ti 27 wti 1H8 wti 2H8 Jul-4 Oct-4 Jan-5 Apr-5 Jul-5 Oct-5 Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Sep USD/barrel 25

26 Price Scenario WTI Price Forecast $/bbl 1Q 2Q 3Q 4Q FY USD/bbl Q 2Q 3Q 4Q FY 26

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