SEER, INC.
WORLD OIL MARKET
IN 2005
August 2004
Michael C. Lynch
President, Strategic Energy & Economic
Research, Inc
EXTRAODINARY PRICE LEVELS
„ LONGEST ‘BUBBLE’ WITHOUT MAJOR
DISRUPTION
„ UNUSUAL MARKET THIS YEAR
„
POST SARS, RECESSION
„ PRODUCT MARKETS
„
ENVIRONMENTAL REQUIREMENTS
„ SPECULATORS
45
40
35
30
$/BARREL
SEER, INC
US OIL PRICES (nominal)
25
20
15
10
5
0
Jan-74
Jan-76
Jan-78
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
CHANGES IN IEA FORECAST, DECEMBER 2003 TO MAY 2004
1.8
1.6
1.4
1.2
1
MB/D
SEER, INC
REVISIONS TO OIL MARKET
0.8
0.6
0.4
0.2
0
4Q03
1Q04
2Q04
3Q04
-0.2
OECD DEMAND
CHINA DEMAND
OTHER ASIA DEMAND
OECD SUPPLY
4Q04
SEER, INC.
SECURITY PREMIUM
„ THREATS UNUSUAL IN BREADTH AND
DEPTH
MINOR: NIGERIA, VENEZUELA
„ MEDIUM: IRAQ
„ MAJOR: SAUDI ARABIA
„
„ NO SURPLUS CAPACITY
„ LOW PRIVATE INVENTORIES
„ RELUCTANCE TO USE SPR
„ BUSH IN VENEZUELA STRIKE,
CONTINUING FILL
60
GASOLINE
50
MID DIST
WTI
40
$/BBL
SEER, INC.
SECURITY PREMIUM
30
20
10
0
0
50
100
150
200
MLN BBLS
2003
2004
250
300
350
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Jan-88
Jan-86
Jan-84
Jan-82
Jan-80
Jan-78
Jan-76
Jan-74
Jan-72
Jan-70
TB/D
SEER, INC.
OPEC SURPLUS CAPACITY
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-89
Jan-88
Jan-87
Jan-86
Jan-85
SEER, INC
OECD COMMERCIAL
INVENTORIES
3,000
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,100
2,000
3,500
3,000
2,500
2,000
TB/D
SEER, INC.
LOST PRODUCTION, 2003
1,500
1,000
500
0
Jan-03
FEB
MAR
APR
MAY
IRAQ
JUN
JUL
VENEZUELA
AUG
NIGERIA
SEP
OCT
NOV
DEC
SEER, INC.
IRAQI OUTLOOK
„ VIOLENCE AGAINST OIL
INFRASTRUCTURE SHOULD SUBSIDE
„
SPEED UNCERTAIN
„ GRADUAL IMPROVEMENT IN EQUIPMENT
„ LESS DOWNTIME
„ REHABILITATION OF FIELDS ONGOING
„ GRADUAL INCREASE IN CAPACITY
„ MOVING TOWARDS NEW FIELD
DEVELOPMENT
„
MAJOR CAPACITY INCREASES FROM 2005
SEER, INC.
TRANSFER OF POWER AND
FUTURE VIOLENCE
Mode of attack
Target
Baathists
Guerilla:
Sabotage, ambush
Oil and other infrastructure,
US forces, pro-regime civilians
Impact of
Sovereignty Change Unclear
Zarqawi
Terrorism:
Suicide bombings
Civilians; Kurdish and
Shi'ite targets
Nationalists
Random:
RPG, IEDs
US forces
None
Reduced activity
AND SEER 9/03 FORECAST
3500
3000
2500
2000
TB/D
1500
1000
500
ACTUAL
PESSIMISTIC
OPTIMISTIC
JUL
Jan-04
JUL
Jan-03
JUL
0
Jan-02
SEER, INC.
IRAQI PRODUCTION
SEER, INC.
THE BIG QUESTION:
VULNERABILITY OF SAUDI OIL
„ SECURITY AT OIL FACILITIES HIGH
„
BUT NEVER PERFECT
„ BASRA SUICIDE SPEEDBOATS FIRST OIL
FACILITY ATTACK
„ FUNDAMENTALISTS STRONG IN SAUDI
„
BUT ATTACKS TARGET FOREIGNERS
„ THREAT PROBABILITY: VERY LOW
„ THREAT IMPACT: VERY HIGH
SEER, INC.
MARKET IN 2005
„ DEMAND GROWTH LOWER
„ NON-OPEC SUPPLY GROWTH HIGH
„ IRAQI PRODUCTION UP 500 TB/D OR
MORE
„ CALL ON OTHER OPEC SHOULD BE
LOWER BY AS MUCH AS 1.5 MB/D
„ BUT: EASY TO ABSORB
„ PRICES SLIGHTLY WEAKER
„
UNLESS OPEC MISCALCULATION
3000
2500
2000
1500
1000
TB/D
SEER, INC.
HISTORICAL DEMAND GROWTH
500
0
-500
-1000
-1500
1990
1991
1992
1993
1994
1995
1996
1997
1998
OECD
FSU
OTHER
1999
2000
2001
2002
2003
2004
3
2.5
2
MB/D
SEER, INC.
DEMAND CHANGE
1.5
1
0.5
0
2003
2004
OECD
FSU
CHINA
OTHER ASIA
2005
REST OF WORLD
2
1.5
1
MB/D
SEER, INC.
NON-OPEC SUPPLY CHANGE
0.5
0
-0.5
2003
2004
OECD
NON-OECD
2005
FSU
OPEC NGLS
QUARTERLY CHANGE
2
1.5
1
0.5
0
MB/D
SEER, INC.
CALL ON OPEC+STOCKS
-0.5
-1
-1.5
-2
-2.5
-3
-3.5
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
MARKET BALANCE
„ ABOUT EVEN FOR OPEC
„ DEMAND AND NON-OPEC SUPPLY BOTH
UP ABOUT 1.5 MB/D
„ BUT INTERNAL PRESSURES
„ IRAQ UP 0.5 MB/D, OTHERS ABOUT 1 MB/D
„ SAUDI, KUWAIT CAN EASILY ABSORB
„ BIG QUESTION
„ DO SAUDIS WANT 8.5 MB/D OR MARKET
SHARE?
„
PREPARING FOR AN IRAQI BOOM???