Oil Market Outlook
– The Fat Lady Has Started To Sing
- “Sad but true” for Norway but not all “Doom and Gloom”
- A dream come true for the US
“Hey, I’m your life
I’m the one who took you there
Hey, I’m your life
And I no longer care”
Quote: Hetfield, Ulrich, Alan – “Sad but true”
February 2013 - Torbjørn Kjus
The Limit Of Oil Production Is Being Reached - Not
- In 1919 the US had produced 4 billion barrels of oil and the US Bureau of Mines though the country would run out of oil by 1930
- By 2012 the US has produced about 205 billion barrels
•Carl Beal (US Bureau of Mines in 1919):
“The limit of production in this country is being reached, and although new fields
undoubtedly await discovery, the yearly output must inevitably decline, because the
maintenance of output each year necessitates the drilling of an increasing number
of wells. Such an increase becomes impossible after a certain point is reached, not
only because of a lack of acreage to be drilled, but because of the great number of
wells that will ultimately have to be drilled.»
The statement above could have been stated now about sceptics to shale oil
production in the US, but it was written in 1919.
•MIT professor Morris Adelman:
•“In the United States in 1930, proved reserves were 13 billion barrels. Over
the next 60 years, the United States, without Alaska, produced 130 billion
barrels. The inventory turned over ten times.”
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
2
The Fat Lady Has Started To Sing – “Sad But True”
- “Hey, I’m your life – I’m the one who took you there - Hey, I’m your life and I no longer care”
Metallica – “Sad but true”
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
3
More Normal For Oil Prices To Trend Lower Than Higher
Oil Prices In Real Terms
Formation of OPEC in 1960
•
Oil prices politicised
•
Electronic oil trade – easy access
•
Oil as a separate asset class
•
Emerging market economic growth
140
120
100
80
60
100-year period of oil prices trending lower
40
20
0
1861
1881
1901
1921
1941
Historical oil prices in real terms (BP Stats)
1961
1981
2001
2021
Return to lower real term prices?
Source: BP Statistical Review, DNB Markets
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
4
Trend Line Demand Growth Weakening On High Prices
- We do not believe the world is about to return to the latest 30-year long trend line oil demand path which started in 1983
Global Oil Demand - Price Matters
100
250%
Supply shock:
• Yom Kippur
90
Global Oil Demand (mbd)
80
150%
70
100%
Demand «shock»:
• China and emerging markets
• Weak non-OPEC supply growth
60
50%
Oil price change in percent
200%
50
0%
40
Supply shock:
• Iran vs Iraq
• Revolution in Iran
30
-50%
1965
1970
1975
1980
1985
Oil price change (real terms)
1990
1995
2000
Global oil demand
2005
2010
2015
2020
Fwd looking oil demand DNB
Source: BP Statistical Review, DNB Markets
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
5
Peak Oil Has Already Happened
- At least when talking about demand in the developed world – and a large chunk of this looks structural and not cyclical
OECD Oil Demand Deseasonalized
Million b/d
52
51
•JBC claims European oil demand would have been 1 million b/d
higher now than ten years ago without a 20% efficiency
improvement in the car fleet.
50
•Efficiency improvement in the European transportation sector set
to knock off a further 0.5 million b/d by 2020 according to the JBC
transport model.
•In Britain the MPG for new cars on the road has increased from
36 MPG to 47 MPG since 2001.
49
48
47
46
45
44
Jan/2002
OECD Oil Demand (kbd)
LPG and Ethane
Naphtha
Motor Gasoline
Jet and Kerosene
Diesel
Other Gasoil
Residual Fuels
Other Products
Total Products
Jan/2004
2005
4776
3274
14836
4263
8519
4590
4504
5124
49888
Jan/2006
2012 Change
4787
11
3187
-87
13870
-966
3672
-591
9546
1027
2983
-1607
2779
-1725
4472
-652
45297
-4591
Jan/2008
Jan/2010
Jan/2012
Source: IEA
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
6
GDP Growth In OECD No Longer Provide Growth In Oil Demand
- The high and rising oil price has started irreversible negative effects on demand for refined oil products in advanced economies
Advanced Economies GDP vs Oil Demand
(Yearly data 1980-2012)
Advanced Economies GDP vs Oil Demand
(Yearly data 1980-2005)
53
53
51
y = 0.5492x + 33004
R² = 0.9221
47
45
43
41
39
37
35
5000
10000
15000
20000
25000
30000
49
y = 0.3364x + 36484
R² = 0.6984
47
45
43
41
39
37
35
5000
35000
10000
15000
20000
25000
30000
35000
40000
45000
Advanced Economies GDP - Purchasing Power Parity
Advanced Economies GDP - Purchasing Power Parity
Source: DNB Markets, BP stats, IMF
Source: DNB Markets, BP stats, IMF
OECD Oil Demand vs OECD Economic Growth
Advanced Economies GDP vs Oil Demand
(Yearly data 2006-2012)
45
51
40
49
50
Advanced Economies - GPD in PPP
Avanced Economies - Oil demand Million b/d
51
49
48
47
y = -0.6813x + 73546
R² = 0.5911
46
45
47
30
45
25
43
20
41
15
39
10
37
5
44
43
35000
35
0
36000
37000
38000
39000
40000
41000
42000
35
1980
1983
1986
1989
1992
1995
Advanced economies GDP (PPP)
Advanced Economies GDP - Purchasing Power Parity
Source: DNB Markets, BP stats, IMF
Oil Demand Advanced Economies in Million b/d
49
Avanced Economies - Oil demand Million b/d
Avanced Economies - Oil demand Million b/d
51
1998
2001
2004
2007
2010
Advanced Economies Oil Demand
Source: BP stats, DNB Markets, IMF
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
7
Overdose
"You're a habit I don't wanna break
just write on my grave
I overdosed on you"
(AC/DC - Let there be rock)
The US has however been on a very good track in recovering from it's
addiction to oil after it's overdose. The country has recently turned into
a net oil products exporter.
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
8
US Fuel Efficiency Standards To Significantly Improve By 2025
-CAFE-standards to reach 49.6 MPG by 2025
Source: Annual Energy Outlook – EIA June 27 2012
US CAFE Standards
(Source: EIA)
60
55
US CAFE standard
50
45
40
35
30
25
20
15
1978
1983
Passenger cars
1988
1993
1998
Passenger cars new CAFE
2003
2008
Light Trucks
2013
2018
2023
Light Trucks new CAFE
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
9
The Huge US Oil-Gas Spread Provides Substitution Possibilities
-General Motors will soon produce dual fuel pick ups and trucks that can switch between gasoline and CNG
$/MMBTU
WTI & Henry Hub
24
22
20
18
16
14
12
10
8
6
4
2
0
Jan-00
Source: Reuters
Jan-02
Jan-04
Jan-06
Henry Hub
Jan-08
Jan-10
Jan-12
WTI 1st month
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
10
How Large Is This Change In US Crude Output Really?
- Last year Texas was still below Norwegian crude oil production – Not anymore…
Norway
Crude OilCrude
Production
Texas
& Monthly
Norway Monthly
Oil Production
3.4
Million b/d
2.9
2.4
1.9
1.4
0.9
Jan-00
EA DOE, IEA
Source: US
Jan-02
Jan-04
Jan-06
Texas crude oil production
Jan-08
Jan-10
Jan-12
Norway crude oil production
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
11
Texas & North Dakota Is Where It Has Happened So Far
- Growth in North Dakota started in 2008 while Texas was two years later in the cycle
Year
Production
Year on
on Year
Year Texas
Texas Crude
Crude Production
700
600
600
500
b/d
Thousand b/d
500
400
400
300
300
200
200
100
100
0
0
-100
-100
-200
-200
-300
-300
Year on Year North Dakota Crude Production
300
250
Thousand b/d
200
150
100
50
0
-50
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
12
Conventional vs Unconventional
- Moving to the “kitchen” instead of the “living room” (Source: USGS)
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
13
Technology Has Unlocked Gas & Oil In Shale Source Rock
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
14
North American Shale Crude Production Growing Very Quickly
- Total liquids output in US/Canada set to grow from 14.7 million b/d to 21.7 million b/d (up 7 million b/d) – Canadian shale crude up
from 0.2 million b/d to 0.6 million b/d – Canadian oil sands up from 1.8 million b/d to 3.0 million b/d
US/Canadian Oil Liquids Production Forecast
(Source: PIRA Study - Road to US Energy Independence, Sep 2012)
22
Canadian other
Canadian NGLs
20
Canadian shale crude
Canadian conventional
18
Canadian oil sands
US Other
16
US Non-Shale NGL
US Shale NGL
Uinta
14
Million b/d
Lower Smackover Brown Dense
Tuscaloosa Marine
12
Ardmore Woodford
Barnett
10
Utica
Monterey
8
Anadarko (Cana) Woodford
Niobrara
6
Granite Wash
Mississippi Lime
4
Permian Basin Shales
Bakken
2
Eagle Ford
Ethanol
0
2005
Non-Shale Crude & Condensate
2007
2009
2011
2013
2015
2017
2019
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
15
Type Curve Have Similar Shapes Across Plays
- Source: PIRA Study – Road to US energy independence
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
16
But Decline Rates Per Well Not Interesting In This Industry
- One horizontal rig will increase its contribution even if decline rates per rig is very high – this is like traditional process industry
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
17
US Recoverable Shale Oil Reserves - 113 billion barrels
- Source: PIRA Study – Road to US energy independence
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
18
US Shale Resources vs Other Resources
- US shale resources larger than conventional reserves in Kuwait/UAE/Russia
US Shale Reserves Relative To Others
(Source BP stats and PIRA shale study)
300
EUR Billion barrels
250
200
150
100
50
0
Saudi
Iran
Iraq
Kuwait
UAE
Russia
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
Brazil
US
US shale
(PIRA)
19
Reserves Growth Set To Accelerate?
- There is already visible reserves growth but will the shale oil revolution lead to an acceleration in coming years?
Historical Assessment Of Proven Oil Reserves
(Source BP stats 2012)
Proven reserves billion barrels
1800
1600
1400
1200
1000
800
600
400
200
0
1980
1983
1986
1989
1992
1995
1998
2001
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
2004
2007
2010
20
We Are Starting To See The Effect On US Crude Imports Now
- US crude imports has started to drop but this is just the beginning
US Crude imports 4 week mavg
11.0
10.0
Million b/d
9.0
8.0
7.0
6.0
5.0
4.0
Jan-2003
Jan-2006
Jan-2009
Jan-2012
Jan-2015
Jan-2018
?
Source: US DOE
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
21
World Population By Country
(Sources 2009-2011)
Canada (34m)
USA (311m)
Mexico (112m)
Colombia (46m)
•Germany (82m)
•France (66m)
•UK (62m)
•Italy (61m)
•Spain (46m)
•Poland (38m)
•Romania (21m)
Russia (142m)
Ukraine (46m)
Turkey (74m)
Algeria (36m) Iraq (31m) Iran (75m)
Morocco (32m)
Egypt (80m)
Saudi (27m)
Sudan (43m)
Yemen (22m)
Nigeria (158m)
Ethiopia
(80m)
Venezuela (29m)
Kenya (39m)
Congo (68m)
Tanzania (43m)
54% of the world:
•China (1.34b)
•India (1.2b)
Brazil (191m)
Peru (29m)
•Indonesia (238m)
•Pakistan (176m)
•Bangladesh (150m)
•Japan (127m)
•Philippines (94m)
•Vietnam (87m)
Argentina (40m)
South Africa (50m)
•Thailand (67m)
•Burma (50m)
•South Korea (49m)
•Nepal (29m)
•Malaysia (28m)
•North Korea (24m)
•Taiwan (23m)
•Sri Lanka (20m)
•Cambodia (13m)
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
Australia (23m)
22
Non-OECD Oil Demand Will Continue To Grow
- We do however expect the growth rate to decrease in the current decade
Non-OECD Oil Demand
46
44
Million b/d
42
40
38
36
34
32
30
28
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IEA
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
23
Chinese Growth In Oil Imports Stalling??
- Where is the accelerating growth in Chinese crude oil imports??
Chinese Net Crude Imports
7.0
Million b/d
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
24
Chinese Oil Demand Growth To Favor Personal Consumption
- Oil products more tilted towards industrial production and the investment cycle may grow much slower in coming years
Chinese Calculated Gasoline Demand
Million b/d
(Adjusted for inventory change since June-2009)
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics
Chinese Calculated Diesel Demand
(Adjusted for inventory change since June-2009)
4.1
Million b/d
3.6
3.1
2.6
2.1
1.6
1.1
0.6
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
25
Look What The Chinese Have Done With Wind Power
- Increase from zero to 1 million b/d (211 TWh) in 5 years…
Chinese Wind Power Output
(assuming 30% utilization rate)
Oil equivalents, Million b/d
1.20
1.00
•Installed wind capacity to increase by
30% in China in 2013 (from 63GW to
81 GW)
0.80
0.60
•Will equal about 211 TWh (1 million
b/d) with a 30% utilization factor
0.40
•Total German electricity consumption
is about 600 TWh
0.20
0.00
1997
1999
2001
2003
2005
2007
2009
2011
Source: BP stats, Global Wind Energy Council
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
26
OPEC Spare Capacity Reduced Since 2009
- This is the flip side of the increased Saudi production
Million b/d
OPEC Spare Capacity (IEA Monthly)
9
8
7
6
5
4
3
2
1
0
Nov-01
Nov-03
Source: IEA, DNB Markets
Nov-05
Nov-07
Nov-09
Core OPEC (Saudi/UEA/Kuwait)
Nov-11
Nov-13
Rest of OPEC
Source: IEA Monthly Oil Market Reports
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
27
MENA: Sex Ratio – Unemployment - Young Population
- A recipe for social unrest
Skewed Sex Ratio in The Middel East
Low Labor Force Participation In MENA
Very Young Population In MENA
Source: International Labor Organization, UN Population Division, Gapminder
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
28
Saudi Requires Higher Oil Prices To Balance The Budget
- Saudi exports assumed to be: 2013-2017 in million b/d: 8.3 – 8.0 – 7.8 – 7.5 – 7.3
$/b
Saudi Break Even Budget Oil Price
200
180
160
140
120
100
80
60
40
20
0
2000
Source: PIRA, IMF
2002
2004
2006
2008
2010
2012
2014
2016
Annual Break Even
4% Spendin g Gr owth ( cu rre nt rate)
12% Spending Gr owth ( 10 year avg)
No spending gr owth
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
29
Long Term Oil Price Forecast
(The forecast is for the average of the rolling 1st month ICE Brent future contract)
Q1-13
Q2-13
Q3-13
Q4-13
2013
2014
2015
2016
2017
2018
2019
2020
Historical
Real (2011) $/b
31.1
31.3
35.3
46.6
62.8
72.7
78.5
101.6
64.7
82.0
110.8
111.7
Forecast
Real (2012) $/b
112
109
105
103
107
100
96
92
89
85
81
78
Spot Brent History & FWD looking
200
160
120
$/b
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Historical
Nominal $/b
24.9
25.1
28.5
38.1
55.0
66.2
72.7
98.7
62.6
80.4
110.8
111.7
Forecast
Nominal $/b
112
109
105
103
107
102
100
98
96
94
92
90
80
40
0
1993
1996
Source: Reuters, DNB Markets
1999
2002
2005
Possible range
Forecast nominal
Forecast real (2012 USD)
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
2008
2011
2014
2017
2020
FWD (nominal)
Historical
30
Backup
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
31
Global Supply-Demand Trends
-12 month moving average based on the latest monthly data suggest decreasing ‘Call on OPEC’ in coming years
- Last year the situation was different (see the graph to the left)
Global Oil Supply vs Demand
(latest 12-month mavg)
Million b/d
95
90
85
80
75
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: IEA, DNB Markets
Current Trend Line Figures
OECD demand
Non-OECD demand:
Total demand
Demand change:
Non-OPEC (incl. non-core OPEC)
Call on core-OPEC crude
Change in Call on core-OPEC crude
Trend Line Growth
-0.9%
3.3%
2012
46.1
43.7
89.8
2.1%
75.6
14.2
Total supply historical
Total global oil demand historical
Total supply trend fwd
Total global oil demand trend fwd
2013
45.7
45.2
90.9
1.0
77.2
13.6
-0.6
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
2014
45.3
46.6
91.9
1.1
78.9
13.0
-0.6
2015
44.9
48.2
93.0
1.1
80.6
12.5
-0.6
2012-15 change
-1.2
4.4
3.2
1.1
4.9
-1.7
32
The Hydraulic Fracturing Technique
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
33
The Most Expensive Barrels Risk Being Pushed Out By Shale Oil
- How expensive will it be to develop oil projects in the Barents Sea?
Marginal Supply vs Oil Price
(If OPEC spare capacity not large enough to push Non-OPEC marginal supply out of the market)
200
180
160
140
$/b
120
100
80
60
40
20
0
1%
10%
19%
28%
37%
46%
55%
64%
73%
82%
91%
100%
% of Supply
OPEC Middle East Supply
Non-OPEC Onshore Supply
Non-O PEC Of fshore Supply
Non-OPEC Deepwater, Oil Sands, GTL, CTL, Biofuel Supply, Arctic (Barents Sea)
OPEC Spare Capacity
No Shale Liquids
Demand
Source. DNB Markets
Marginal Supply vs Oil Price
The most expensive
barrels risk being
pushed out
of the market.
The best example of this
in real life is Shtokman in
the Barents sea.
(Large OPEC Spare Capacity could bring prices down)
160
140
120
$/b
100
80
60
40
20
0
1%
10%
19%
28%
37%
46%
55%
64%
73%
82%
91%
100%
% of Supply
Source. DNB Markets
OPEC Middle East Supply
Non-OPEC Onshore Supply
Non-OPEC Offshore Supply
OPEC Spare Capacity
Shale Liquids
Non-OPEC Deepwater, Oil Sands, GTL, CTL, Biofuel Supply, Arctic (Barents Sea)
Demand
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
34
Existing Projects Will Cover Most Of The Oil Need By 2020
Net Oil Need Of 23 Million b/d Before 2020??
Conclusion:
(Assuming 2.5% net decline rate and below trend line oil demand grow th (0.8% vs trend line 1.5%)
95
85
Million b/d
23
75
65
55
45
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
•The gap (23-17-16 ??)
by 2020 will be
covered by existing
projects. No need for
new discoveries to
cover the gap by 2020.
Global Liquids supply (excl. biofules and processing gains)
Below trendline demand growth
Source: IEA, Rystad Energy, DNB Markets
Lost output
•Net need of new barrels by 2020 in million b/d:
17+6 =23? 11+6 =17?, 10+6 =16?
•Lost supply from decline rates:
•17 million b/d (2.5%)- source
Rystad Energy
•11 million b/d (1.6%)- Harvard
report.
•10 million b/d (1.5%) IEA WEO
1212 (page 102).
•How much can supply increase?:
•Rystad Energy: 27 million b/d
•GS top 360: Estimated growth in
world oil liquids supply from the
worlds top 360 projects 2011-2020
(page 41): 38-12 =26 million b/d.
(18 million b/d if adjusting for
normal project slippage)
•Harvard study: 29 million b/d.
Source: DNB Markets, IEA, Rystad Energy,
Goldman Sachs 360 projects - March 2012,
Harvard Kennedy School – Belfer Center
•Trend line demand growth (1.5%) will
almost be cut in half (0.8%): 6 million b/d.
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
35
Investments Cannot Continue @ 50% Of GDP Growth In China
- The consumption part of GDP growth must soon start to climb – Zero growth in China's investments will halve the GDP growth
China: GDP
Percent change y/y
15
12
9
6
3
0
-3
2001
2003
2005
Source: Thomson Datastream/DNB M arkets
2007
2009
Consumption
Net exports
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2011
Investments
GDP
36
Short Term
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
37
Fundamental Balances DNB Markets vs IEA, OPEC, EIA
DNB Markets World Oil Supply-Demand Balance:
2008
Change
2009
Change
2010
Change
2011
Change
2012
Change
2013
OECD Demand
Non-OECD Demand
Total Demand
48.1
37.7
85.8
-2.1
1.2
-0.9
46.0
38.9
84.9
0.6
2.1
2.7
46.6
41.1
87.7
-0.4
1.3
0.9
46.2
42.4
88.5
-0.4
1.4
1.0
45.8
43.7
89.5
-0.3
1.2
0.9
45.4
45.0
90.4
Non-OPEC Supply
OPEC NGL's and non-conventional oil
Global Biofuels
Total Non-OPEC supply
49.2
4.5
1.4
55.1
0.6
0.4
0.2
1.2
49.8
4.9
1.6
56.3
1.0
0.5
0.2
1.7
50.8
5.4
1.8
58.0
0.1
0.4
0.0
0.5
50.9
5.8
1.9
58.6
0.6
0.4
0.0
1.0
51.5
6.2
1.9
59.5
1.0
0.3
0.2
1.4
52.5
6.5
2.0
61.0
Call on OPEC crude (and stocks)
OPEC Crude Oil Supply (Last known number dragged fwd)
Implied World Oil Stock Change
30.6
31.6
1.0
-2.0
-2.5
28.6
29.1
0.5
1.0
0.1
29.6
29.2
-0.4
0.3
0.6
30.0
29.9
-0.1
0.0
1.5
30.0
31.4
1.4
-0.5
-0.7
29.5
30.6
1.2
IEA World Oil Supply-Demand Balance (Jan 2012):
2008
Change
2009
Change
2010
Change
2011
Change
2012
Change
2013
OECD Demand
Non-OECD Demand
Total Demand
48.4
38.1
86.5
-2.1
1.0
-1.1
46.3
39.1
85.4
0.6
2.0
2.6
46.9
41.1
88.0
-0.4
1.2
0.8
46.5
42.4
88.9
-0.4
1.4
1.0
46.1
43.7
89.8
-0.4
1.3
0.9
45.7
45.0
90.8
Non-OPEC Supply
OPEC NGL's and non-conventional oil
Global Biofuels
Total Non-OPEC supply
49.2
4.5
1.4
55.1
0.6
0.4
0.2
1.2
49.8
4.9
1.6
56.3
1.0
0.5
0.2
1.7
50.8
5.4
1.8
58.0
0.1
0.4
0.0
0.5
50.9
5.8
1.9
58.6
0.6
0.4
0.0
1.0
51.5
6.2
1.9
59.5
0.8
0.3
0.2
1.3
52.3
6.5
2.0
60.8
Call on OPEC crude (and stocks)
OPEC Crude Oil Supply (Last known number dragged fwd)
Implied World Oil Stock Change
31.3
31.6
0.3
-2.2
-2.5
29.1
29.1
0.0
0.9
0.1
30.0
29.2
-0.8
0.3
0.6
30.3
29.9
-0.4
0.0
1.5
30.3
31.4
1.1
-0.3
-0.7
30.0
30.6
0.7
OPEC World Oil Supply-Demand Balance (Jan 2012):
2008
Change
2009
Change
2010
Change
2011
Change
2012
Change
2013
OECD Demand
Non-OECD Demand
Total Demand
48.4
37.7
86.1
-2.1
0.8
-1.3
46.3
38.5
84.8
0.6
1.7
2.3
46.9
40.2
87.1
-0.4
1.3
0.9
46.5
41.5
88.0
-0.4
1.2
0.8
46.1
42.7
88.8
-0.2
1.0
0.8
45.9
43.7
89.6
Non-OPEC Supply (Incl all Biofuel)
OPEC NGL's and non-conventional oil
Total Non-OPEC supply
50.4
4.1
54.5
0.7
0.2
0.9
51.1
4.3
55.4
1.2
0.7
1.9
52.3
5.0
57.3
0.1
0.4
0.5
52.4
5.4
57.8
0.6
0.3
0.9
53.0
5.7
58.7
0.9
0.3
1.2
53.9
6.0
59.9
Call on OPEC crude (and stocks)
OPEC Crude Oil Supply (Last known number dragged fwd)
Implied World Oil Stock Change
31.6
31.2
-0.4
-2.2
-2.5
29.4
28.7
-0.7
0.4
29.8
29.2
-0.6
0.4
30.2
29.9
-0.3
-0.1
30.1
31.4
1.3
-0.4
29.7
30.6
0.9
EIA World Oil Supply-Demand balance (Jan 2012):
2008
Change
2009
Change
2010
Change
2011
Change
2012
Change
2013
OECD Demand
Non-OECD Demand
Total Demand
47.6
38.2
85.8
-2.2
0.7
-1.5
45.4
38.9
84.3
0.7
2.1
2.7
46.1
41.0
87.1
-0.3
1.5
1.2
45.8
42.5
88.3
-0.7
1.3
0.6
45.1
43.8
88.9
-0.1
1.2
1.2
45.0
45.0
90.1
Non-OPEC Supply (Incl all Biofuel)
OPEC NGL's and non-conventional oil
Total Non-OPEC supply
49.7
4.5
54.1
0.8
0.3
1.1
50.5
4.8
55.2
1.3
0.8
2.1
51.8
5.5
57.3
0.2
-0.3
-0.1
52.0
5.3
57.2
0.5
0.3
0.8
52.5
5.6
58.0
1.4
0.2
1.6
53.9
5.8
59.7
Call on OPEC crude (and stocks)
OPEC Crude Oil Supply (Last known number dragged fwd)
Implied World Oil Stock Change
31.7
31.3
-0.4
-2.6
-2.2
29.1
29.1
0.0
0.7
0.1
29.8
29.2
-0.5
1.3
0.6
31.1
29.9
-1.2
-0.2
1.5
30.8
31.4
0.5
-0.5
-0.7
30.4
30.6
0.3
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
38
Oversupplied Market In 2013 If OPEC (Saudi) Do Not Cut
Million b/d
Global Oil Supply vs Demand
94
92
90
88
86
84
82
80
78
76
74
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IEA, DNB Markets
Global supply
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
Global demand
39
Fundamentals (Supply vs Do Still Matter For Oil Prices
Call on OPEC vs Price Change
2.0
36
1.5
26
16
0.5
6
0.0
-5
-0.5
-15
-1.0
-25
-1.5
Brent Price Change - $/b
Call on OPEC Change - Million b/d
1.0
-35
-2.0
-2.5
-45
2000
2001
2002
Brent Price Change
2003
2004
2005
2006
2007
IEA Call on OPEC Change
2008
2009
2010
2011
2012
2013
DNB Markets Call on OPEC Change
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
40
2013 Oil Price Scorecard – Brent Forecast Maintained @ 107 $/b
2013 Oil Price Scorecard
Comments
Oil Price
There will be powerful forces working in different directions for the oil market in 2013. Geopolitics and increased liquidity poured into the
system from central banks should pose positive elements for oil prices but fundamentally the market will not look strong. After the
change of the millennium we have seen two incidents of a decreasing 'Call on OPEC' (2000-02 and 2008-09). Oil prices fell back in both
cases. Since we believe the 'Call on OPEC' will decrease significantly in 2013 the average oil price should be falling compared with 2012.
We do however still believe it will trade above 100 $/b, supported by the mentioned geopolitical and liquidity factors.
Average
price
107 $/b
Global Fundamental Balance
We forecast 'Call on OPEC' will decrease by 0.7 million b/d on a combination of strong growth in non-OPEC supply (particularly from North-America) and weaker net oil
demand growth.
BEARISH
HIGH
Crude vs Product Balance (Margins)
More refinery capacity will be added next year than net growth in global oil demand. IEA estimate that more than 4 million b/d of capacity will be added in 2013 if we
include desulphurization capacity, upgrading units and CDU expansions. Most of the additions will be in Asia, the Middle East and Former Soviet Union (FSU).
BEARISH
MEDIUM
OECD Stock levels
OECD stock levels are high when measured in days of demand coverage. Unless OPEC cuts back output next year, OECD stocks will continue to grow.
BEARISH
LOW
OPEC Spare Capacity
Since we believe there will be a need for OPEC to cut production next year and since we believe Saudi Arabia will defend oil prices in the 80-100 $/b range, the implication
of lower output from OPEC is higher spare capacity. In addition the production capacity is expected to grow in Iraq, Libya and Angola.
US oil demand is expected to fall 0.1 million b/d next year while liquids supply is expected to grow 0.7 million b/d on the back of the new shale liquids industry. This means
US crude imports should continue to decrease, hence making more crude oil available for other consumers.
We believe global oil demand growth will be weak also in 2013. A high oil burden normally provides less "bang for the buck" with respect to the intensity factor vs
economic growth. Instead of growing 0.5 percent for every percent growth in global GDP, we believe 2013, just as 2012, will offer significantly lower oil demand growth
per unit GDP-growth than the long-term average of 0.5. Chinese oil demand growth has been weak so far in 2012 and with expectations of weaker economic growth next
year there is probably no reason to expect trend-line growth of Chinese oil demand in 2013 either. We think net global oil demand will grow only 0.7% in 2013 which is
very similar to 2012. Chinese oil demand is expected to grow 366 kbd next year vs 271 kbd in 2012. This is meaningfully weaker than the ten-year average growth of 500
kbd. European oil demand will continue to fall, next year by 0.4 million b/d, slightly less than in 2012. OECD Asia oil demand growth, which has been so strong in 2012
(+358 kbd ytd) due to oil used in the power sector in Japan, is expected to fall to about zero in 2013. That could even prove to be optimistic as the 2012-numbers have
been inflated by all the nuclear outages (and if many of these reactors return to service next year, oil demand in Japan will start falling). Total OECD demand is expected
to fall 0.5 million b/d next year while total non-OECD demand is expected to rise by 1.2 million b/d, providing net global oil demand growth of 0.6 million b/d. We still
forecast decent demand growth in Asia, Latin America and most of the Middle-East, but the expected weakness in OECD offsets much of the demand growth in nonOECD.
We think OPEC will reduce its production meaningfully in 2013, both since Saudi Arabia will cut its output to balance the market but also since the Iranian conflict is not
set to be resolved and hence Iranian capacity is not set to be fully restored in 2013.
BEARISH
MEDIUM
BEARISH
MEDIUM
BEARISH
MEDIUM
Overall Outlook
Weight
Fundamentals
US Oil Statistics - Fundamentals
Global Demand Growth
OPEC Supply
Non-OPEC Supply
BULLISH
LOW
Non-OPEC production including biofuels is expected to increase by 1.1 million b/d in 2013. 70% of this growth is expected to come in North-America, due to the shale
liquids revolution. OPEC NGLs production is expected to increase by 0.3 million b/d. This is normally added to the non-OPEC supply category since it is not part of OPEC's
production target system. This means total non-OPEC production including OPEC NGLs is expected to increase by 1.4 million b/d. We do not expect unplanned supply
outages caused by accidents, strikes, security issues, technical problems and weather to be as high in 2013 as we have seen in 2012. The largest part of the unplanned
outages in 2012 was due to reduced production in Sudan/South-Sudan, Syria, Yemen and the UK (the Buzzard field). The largest reduction in outage is expected from
South-Sudan which we estimate will see a gradual return during 2013 starting in February to reach pre-conflict level if above 300 kbd by the end of next year.
BEARISH
MEDIUM
The largest risk is connected to Iran's nuclear program and the fact that EU has decided an oil embargo vs the country and US has imposed financial sanctions. Officials in
Iran have threatened to close the strait of Hormuz where 35-40% of the worlds traded oil passes through. We do not think Iran will choose to close the strait. It is
rational to threat to close it but irrational to carry through with it. Iran does not have the military muscles to match the US fifth fleet which is based in Bahrain. We
always believed there was only a very small chance that Israel would attack Iran in 2012, even though it seemed several players placed some bets on that to happen.
Now after the US elections there is however a larger chance for a physical attack since the US will need to be part of this to make any action successful. There is also
constant risk for output disruptions in the whole of Middle-East/North-Africa as the "Arab spring" is not at all over in our view. The continuous demonstrations in Egypt
illustrate the point. The on-going unrest in Syria, which some view as a proxy war between Iran and Saudi, risks spilling over in a wider sunni-shiite conflict that could
threaten stability in the whole region. We hence believe geopolitical risk still justifies a sizeable price premium in the oil market for 2013.
BULLISH
HIGH
The US has had its quantitative easing (QE) nr 1, nr 2 and nr 3. All have been supportive for oil prices. Also the European LTRO-program launched last December was
positive for oil prices. Generally any increased liquidity is short term positive for oil prices. The final solution to the European debt crisis could end up being that the ECB
will have to help European countries inflate out of the debt problem. This could be serious trouble for the real economy and physical oil demand but could still
(temporarily) support oil prices through financial demand for oil (both through increased investment in paper oil and as a hedge vs inflation). We believe the US "fiscal cliff"
will be "solved" by last minute compromises between republicans/democrats and that could cause a liquidity rally as we start 2013. The rally will however be relatively
short lived as weak global oil fundamentals start making their negative impact on the market.
BULLISH
MEDIUM
Political Risk
Iraq, Iran, Nigeria, Venezuela,
US, Russia, Israel, MENA, etc
Other Factors
Financial Money Flow
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
41
Monthly Oil Price Scorecard
-Please read on paper or zoom in on screen
Monthly Scorecard
Overall Outlook
Comments
Tight North-Sea fundamentals compete with weak global oil fundamentals. At the same time the geopolitical risk related to Iran’s nuclear ambitions are very high, as the EU this
week tightened sanctions. Also the Syrian civil war is adding to the contagion risk for the Sunni-Shiite conflict in the Middle East. Speculative positions are however again very high
and there is a risk that players soon might take profit on the large Brent-WTI spread. If such a profit taking on the spread becomes large it risks pushing the flat price of Brent into
profit taking modus where machine trade kicks in. If that happens we could see another flush out similar to the one we saw in May-June earlier this year.
Oil Price Weight
BEARISH
Fundamentals
Global Fundamental Balance
Even with Iranian production down by almost 1 million b/d since last year to 2.63 million b/d (and 0.6 million b/d down since May) the global fundamental balance is looking over supplied. The key mitigating factor is that Libya
is currently producing 1.4 million b/d more than a year ago and Iraq is up more than 0.4 million b/d since last year. It is easy to imagine how weak the balance would look if the shut in Iranian barrels should come back into the
market. Saudi would then need to cut output significantly if the kingdom wants to protect prices above 100 $/b. It is however not our base case that the Iranian barrels are returning to the market within the next half a year
and our methodology is to keep the last known OPEC production level flat in our forward looking supply-demand model.
Both complex and simple margins saw an astonishing rally from August into September. Refiners have struggled with financing inventory levels this year (Banks are increasingly sceptical to refiners in Europe) and have as a
consequence drawn down product stocks to very low levels. This has happened on both sides of the Atlantic. When we then had the Hurricane Isaac shutting down a lot of US refinery capacity in September just after the
big accident at Venezuela’s largest refinery on August 25 (the Amuay refinery with a capacity of 645 kbd) margins rallied. Refineries in both US and Europe are however now in the process of returning from planned
maintenance and margins are quickly deteriorating. Cracking margins in Rotterdam based on Brent have already fallen from 13 $/b to 8 $/b the last three weeks while Hydro Skimming margins are down from 11 $/b to 5 $/b in
the same period. In Europe the gasoline crack spread based on Brent is down from 22 $/b to 10 $/b the latest two weeks. Margins in the US GOM have also collapsed in recent weeks. A Brent based cracking margin in the
GOM is down from 13 $/b to only 3 $/b during the last two weeks. Singapore margins have also seen some weakness recently but have not fallen as much as in US/Europe. We are still not at run cut levels in any region but
the extreme margin strength is gone for now.
Total oil stocks in the OECD based on forward demand coverage was estimated at 58.8 days in last week’s IEA monthly report. This is higher than last year and close to the top of the 5-year range. Crude stocks have drawn
down since June but are still above both last year and the 5-year range. Product stocks have on the other hand built since June but are still below both last year and the 5-year range. OECD gasoline stocks are lower than
last year but almost spot on the 5-year average, while middle distillate stocks are below the 5-year range. Crude stocks in Europe have built from extremely low levels at the start of 2012, but have according to Euroilstocks
built 16 million barrels so far this year and are now much higher than last year and are again into the 5-year range. In Europe there are however still low inventories of gasoline, middle distillates and residual fuel, according to
the latest Euroilstocks data. In the US we are still in a situation with low gasoline and middle distillate stocks, while crude stocks are above the 5-year range.
As mentioned above US crude stocks are still very high. This is mainly a consequence of the shale oil revolution that is taking place in the US. This summer US crude stocks were at the highest level since 1991, but have
since drawn somewhat down, mainly due to the Hurricane Isaac which shut in 14 million barrels in the GOM that would otherwise have been produced. US domestic oil production is up 0.7 million b/d vs last year based on a 4week moving average on the weekly US production data from the EIA. If we use the latest monthly fully revised production data, which is from July, the year on year growth is 0.8 million b/d of crude oil output. Texas output
growth is up 0.5 million b/d vs last year while North Dakota is up 0.25 million b/d. Last week the August number for North Dakota production was reported by the state authorities and production was up 27 kbd from July to
stand at 701 kbd in August. The monthly growth rate in output of 27 kbd is the 4th highest growth month recorded. The average number of horizontal rigs working in the Bakken field decreased from 183 in July to 179 in
August, so there are in other words no visible signs that fewer rigs are limiting production growth so far. As we have earlier emphasized the August data confirms that each rig is still becoming gradually more efficient. We are
still early in the learning curve in the shale oil industry. US oil demand is currently down 464 kbd vs last year in the latest weekly data set (using a 4-week moving average). This is down 2.45% vs last year. To put it short,
the US fundamental balance continues to weaken and the country will need gradually lower imports of oil. Year on year crude imports into the US is currently down 517 kbd on a 4-week moving average basis and we believe it
will continue to decrease in the coming years.
IEA released its yearly Medium Term Oil Market Outlook last Friday. The report, as before, focuses on the medium term oil market outlook (the next five years). The agency revised down its estimated demand growth and now
expects larger growth in both North American and Iraqi production than last year’s report. Quote from the report: “The result is a noticeable more comfortable oil supply/demand balance by the end of the forecast period than
previously expected and than has been the case through most of the last decade. The ‘call on OPEC and stock changes’ is expected to average below current OPEC production levels, while OPEC spare capacity is forecast to
return to more comfortable levels than the sometimes razor-thin cushion that had worried market participants in recent years.” As our regular readers will know, we have advocated this view of a weaker medium to longer
term supply/demand balance since April. The Chinese oil trade data was recently reported and crude imports increased from 4.4 million b/d in August to 4.9 million b/d in September. By face value that could look like a strong
number, but the fact is that the August imports was exceptionally low, and we have to go back to October last year to find a number as low as 4.9 million b/d which was the September imports number. Year on year growth
in crude imports was hence negative also for September, despite the large growth vs August. It is worth remembering that Chinese crude imports were above 6 million b/d in April/May, just to put things in perspective.
According to a Reuters poll the top 12 Chinese refineries are set to cut runs by 4 percent in October vs September due to planned maintenance and slack demand. The 12 refineries represent a third of Chinese capacity and
plan to run 130 kbd less crude in October according to the survey. Hence we should not expect strong oil demand growth numbers to be reported from China in the coming month (the detailed October oil demand numbers for
China can be calculated around 22 November).
Total OPEC crude production fell from 31.7 million b/d in August to 31.2 million b/d in September according to the latest IEA monthly report posted last Friday. Production in Iraq and Libya was up 110 kbd but that was not
enough to offset a drop in Nigeria (-240 kbd), Iran (-220 kbd) and Saudi Arabia (-100 kbd). We expect all OPEC countries except Saudi Arabia to continue to maximise their production in the coming months. Moving into next
year we believe Saudi will have to start throttling back output if the kingdom wants to maintain crude prices above 100 $/b.
Year on year total non-OPEC supply was only up 0.1 million b/d in September. South-Sudan was down 347 kbd, Syria down 130 kbd, Norway down 265 kbd, UK down 227 kbd, Azerbaijan down 128 kbd, Kasakhstan down 128
kb, Indonesia down 105 kbd. Many of these lost barrels are caused by outages/maintenance and not by structural decline. We expect to see lower decline in UK/Norway in 2013 and South-Sudan and Kazakhstan are probably
on the positive side by the end of 2013. It is also probably worth looking at non-OPEC in a more sophisticated way that the IEA classification. The split between OPEC and non-OPEC makes sense in order to separate
countries that constantly produce as much as they can from countries that sometimes cut output to protect prices. However, the only countries that should be included among countries that are real swing producers are
Saudi/UAE/Kuwait (which we call core-OPEC). If we look at non-OPEC this way (that is all the countries that do not voluntarily cut output from time to time) one can note that year on year output is up about 1.5 million b/d
in September and that is including the almost 1 million b/d lost Iran production. This means that non-OPEC production growth (including the OPEC countries that are not a part of core-OPEC) is twice as strong as global oil
demand growth in September which came in at 0.7 million b/d.
BEARISH
HIGH
NEUTRAL
MEDIUM
NEUTRAL
MEDIUM
BEARISH
HIGH
BEARISH
MEDIUM
NEUTRAL
MEDIUM
BEARISH
MEDIUM
NEUTRAL
NEUTRAL
MEDIUM
MEDIUM
The Buzzard field which is part of the Forties stream which again normally sets the Brent quote is still in maintenance and is set to return 3-4 days later than expected (October 19 or 20) according to a Reuters source.
Forties production started the year at almost 0.5 million b/d but scheduled loading for November is just 0.28 million b/d which is in fact 30 kbd lower than in October. The total loading program for BFOE
(Brent/Forties/Oseberg/Ekofisk) in November is a low 0.78 million b/d, which is down 90 kbd vs an already low October program. To illustrate how low this number is it is worth mentioning that in November 2011 the loading
program for BFOE barrels was 1.06 million b/d. It adds to the low supply in the North Sea that cargoes are still leaving the region for Korea due to the trade agreement with that country (3% lower tax).
BULLISH
HIGH
The EU decided on Tuesday to tighten the sanctions vs Iran’s shipping, banking and industry sectors. EU’s foreign policy chief Catherine Ashton said she hoped that turning up the heat vs Iran would persuade the country to
make concessions and that negotiations could resume. The new sanctions mark one of the toughest moves against Iran to date. The widening sanctions are already doing significant damage to the Iranian economy.
According to Reuters, riots have broken out in Tehran this month in protest at the collapse of the rial currency which has lost two thirds of its value against the dollar during the last 15 months. This has created accelerating
inflation which is said to now be about 25%.
BULLISH
HIGH
Hot Money Net Exposure (Speculators)
Non-Commercial net oil positions on the NYMEX were 410 million barrels in the first week of May. Then the WTI price was 106 $/b. By the first week of July the net positions had been sold off by 164 million barrels to 246
million barrels and the WTI price fell to 87 $/b. Since then the net positions have been rebuilt to 372 million barrels (+126 million barrels) and the WTI price has risen by 5 $/b to 92 $/b. For the Brent market the same numbers
were 115 million barrels net long positions for Money Managers on ICE London in the first week of May. The Brent price was then 120 $/b. These net positions were reduced to only 53 million barrels by the first week of July
and the Brent price dropped to 100 $/b. Since then the Money Managers on ICE London have rebuilt their positions to 106 million barrels and the Brent price has risen to 114 $/b. Bottom line is that financial players have
rebuilt almost all their positions in the Brent market and have also rebuilt a large chunk of the net length on the NYMEX. This fact adds to the downside risk for oil prices. For the Brent market there is extra downside risk
connected to the fact that the Brent-WTI spread has risen from 12 $/b to 21 $/b since July. The risk is that some players who have large gains on this spread in their books may decide to take profit (before it is too late)
and then Brent would be pushed lower, maybe to such an extent that it could unleash a flat price sell-off (machine trades kicking in) similar to what we saw in May.
BEARISH
MEDIUM
Market Psychology/Sentiment
The market sentiment is very unstable at the moment. We are in a struggle between weak global oil fundamentals that competes with strong north-sea fundamentals and geopolitical risk. Also the QE3 in the US adds to the appetite
for investor money entering the oil market. It however looks like much of this QE3-effect was taken out in front of the actual money printing this time, a bit unlike what happened during QE1 and QE2.
NEUTRAL
MEDIUM
Technicals/Price Trends
The crude contracts are looking ok and are hovering around their short term moving averages. There is however downside risk related to the NYMEX gasoline contract which has fallen below all its moving averages.
NEUTRAL
LOW
Refinery Margins (Crack Spreads)
OECD Oil Stock Levels
US Oil Statistics - Fundamentals
Other Important Factors And News
OPEC
Non-OPEC
Seasonals
Temperature Outlook
Hurricanes & Other Weather
North Sea Field maintenance and outage
Normal, or warmer than normal temperatures forecasted in the key heating oil regions for next week.
The tropical storm Rafael might hit the US northeast later this week, but is forecasted to head outwards in the Atlantic.
Political Risk
Iraq, Iran, Nigeria, Venezuela,
US, Russia, Israel, China, etc
Other factors
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
42
Modeled Brent Price Based On Time Spread
- Has provided early market signals several times.
Modelled Brent Price Based On Time Spread (1 vs 3)
(Based on daily correlation since 2009)
150
140
Weak macro economy, European debt crisis
130
120
110
$/b
100
Building risk premium
due to Arab spring
90
80
70
60
50
Iran tensions lead to a risk premium
40
30
20
Nov/2008
Nov/2009
Nov/2010
Nov/2011
Modeled Brent Price, 20 days rolling avg
Nov/2012
Nov/2013
Real Brent Price
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
43
Brent, Forties, Oseberg Ekofisk (BFOE) Loading Programs
- Structural production decline still on-going. In addition about 160 kbd (equals 20% of the current BFOE program) on average has
left for South Korea in 2012 due to the EU free trade agreement (which gives South Korean refiners a 3% discount).
Million b/d
BFOE Loadings
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Apr-09
Oct-09
Source: DNB Markets, Reuters
Apr-10
Oct-10
Apr-11
Brent
Oct-11
Forties
Apr-12
Oseberg
Oct-12
Ekofisk
Source: PIRA
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
44
Modeled Dubai Price Based On Time Spread
- Has provided early market signals several times.
Modelled Dubai Price Based On Time Spread (1 vs 3)
(Based on weekly correlation since 2006)
150
140
130
120
110
$/b
100
90
80
70
60
50
40
30
20
Nov/2008
Nov/2009
Nov/2010
Modeled Dubai price
Nov/2011
Nov/2012
Nov/2013
Real Dubai Price
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
45
Dubai Market (Asia) Is Weakening
- Is it giving us an early warning signal?
4
160
3
140
2
120
1
100
0
80
-1
60
-2
-3
40
-4
20
-5
Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Jan/13
0
Source: Platts
Dubai 1st vs 3rd
Brent Dated - $/b
Dubai time spread - $/b
Dubai 1-3 Month and Brent
Brent
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
46
Financial Oil Positions NYMEX (WTI, RBOB, Heating Oil)
Non-Commercial Net Oil Length
(Non-Commercial total net length of WTI, RBOB & Heat - Futures & Options)
500
155
400
135
95
$/b
Million barrels
115
300
200
75
100
55
0
35
-100
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
15
Source: CFTC
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
47
Net 'Money Managers' Exposure on ICE Brent
ICE London Managed Money Net Brent Oil Length &
Brent Price
200
180
160
140
120
100
80
60
40
20
0
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
Source: Reuters
ICE Brent Futures Net Length
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
130
125
120
115
110
105
100
95
90
$/b
Million barrels
(Net length of Brent Futures)
Brent 1st Month
48
Brent vs LLS Starting To Trade Structurally In Favour Of Brent
- Over time this will push more West-African barrels towards Europe.
Source: PIRA
Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66
49
CONTACTS & DISCLAIMER
Oslo, Sales & Trading
Nils Fredrik Hvatum
Fredrik Sagen Andersen
Jesper Meyer Hatletveit
Nils Wierli Nilsen
Ane Tobiassen
Erik Warren
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London, Sales
André Rørheim
Singapore, Sales
Seng Leong Ong
New York, Sales
Kenneth Tveter
+44(0) 20 7621 6082
Oslo, Research
Torbjørn Kjus
Karl Magnus Maribu
+47 24 16 91 66
+47 24 16 91 57
+65 622 480 22
+1 212 681 3888
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