Crude Oil Price Prospects
Professor Paul Stevens
Senior Research Fellow (Energy) Chatham House
Professor Emeritus, University of Dundee
Visiting Professor University College London (Australia)
London 3rd July 2012
Presentation outline
• The recent history of oil prices
– The Arab Uprisings
– The EU oil embargo against Iran
– Recent price weakness
• The short terms prospects
– “Ground Hog Day” and the global economy
– The legacy of higher prices
• The medium to longer terms prospects
– The legacy of the Arab Uprisings
– The legacy of the “shale gas revolution”
– OPEC’s dilemma
2
The recent history of oil prices
• Arab Uprisings
• EU Embargo
– Transitional price
friction
• Recent decline
– Saudi supply increase
– Demand destruction
– Asia slowing
Million b/d
– Wet barrel market
– Paper barrel market
and contagion fears
39.0
140
38.0
120
37.0
100
36.0
80
35.0
60
34.0
40
33.0
20
32.0
0
2010 1 2010 2 2010 3 2010 4 2011 1 2011 2 2011 3 2011 4 2012 1 2012 2
Call on OPEC
OPEC production
IEA Oil Market Report May 2012
Prices
3
OPEC Basket $ p/b
World Oil Market 2010 - 2012
The short term prospects
OPEC Basket Monthly Price 2009-12
140
• The global economy
• Legacy of higher prices
– The IEA suggests the MICs
will account for 68% of
Non-OECD oil demand
growth 2009-2035
100
$ per barrel
– “Ground Hog Day” and the
euro zone
– Asia slowing
120
80
60
40
20
0
2009
2010
2011
2012
4
The medium to long term prospects
• The legacy of the Arab Uprisings
– Contagion to the GCC unlikely BUT need to pacify populations
– “Supply price” risen. Saudi Arabia 2008 =$50 2012 = $70-90
• The legacy of the “shale gas revolution”
– Application of shale gas technology
– Other unconventional oil
– North America moving to oil independence?
• OPEC’s dilemma
– They need higher prices BUT….
• Higher prices = demand destruction
• Higher prices = increasing Non-OPEC supply
5
OPEC’s expectations and its dilemma
MIDDLE EAST NOCs IN CONTEXT - GLOBAL
RESERVES = 54%
Sources of growth in oil production* 2010-2035
IEA WEO 2011 New Policies Scenario
1600
16
1400
14
1200
12
Qatar
Iran
Iraq
800
Oman
UAE
Kuwait
600
Saudi Arabia
10
Million b/d
Billion barrels
1000
Qatar Petroleum
NIOC
INOC
8
ADNOC
KPC
6
Saudi Aramco
REST OF THE WORLD
Rest of the World
400
4
200
2
0
0
*Includes NGL's and unconventional oil
The “six brothers” account
For 91.2% of the growth
6
Conclusions
• OPEC faces a major dilemma
• They need the “golden eggs” but they need them at a
rate which will probably kill the goose that lays them…
7