Oil Market Outlook 100 dollar oil In the cards again?

Transcription

1 Oil Market Outlook 100 dollar oil In the cards again? Geopolitical events, a global bunker spec change plus the effect of CAPEX cuts in makes for a potent mix in 2020 DNB oil story in pictures & graphs May Torbjørn Kjus

2 US Scrapping Of Iran Nuclear Deal Pushing Long Dated Higher - After Trump scrapped the Iran nuclear deal we have seen a rally in the long dated part of the Brent curve 2

3 Geopolitical Risk To Oil Prices Is higher In 2018 Than In Libya, Nigeria, Venezuela, Iran & Iraq are producing close to their short term capacity Million b/d Million b/d Million b/d Million b/d Million b/d Million b/d Libyan Oil Production Iran Oil Production Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: IEA Source: IEA Source: IEA Nigerian Crude Oil Production (Not including condensate) 1.1 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan Iraqi Oil Production 0.5 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: IEA Venezuela Oil Production Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: IEA Source: IEA Year on Year Venezuela Oil Production Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 3

4 Days of demand coverage Million barrels Global Onshore Stocks Drawing Down Significantly in 2017/18 5,900 Global Oil Stocks (Includes SPR but not for China) 5,700 5,500 5,300 5,100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5 year min 5 year average forecast Source: JODI average Global Oil Stocks In Days Of Demand Coverage (Includes SPR but not for China, demand taken from IEA) Jan Feb Mar 5 year Apr min May Jun 5 Jul year average Aug Sep Oct2016 Nov Dec forecast Source: JODI, IEA average 4

5 Million b/d Continued Stock Draws In 2018 If OPEC Stays Flat 3.5 DNB Markets World Oil Supply-Demand Balance (Implied global stock change) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IEA, DNB Markets 5 year range 5 year avg

6 Global Economy Firing On All Cylinders - Best period we have seen since Global activity: DNB MacroScore Weighted Index Source: DNB Markets 2.0 DNB MacroScore Hard data Consumption Production Orders Housing Exports Source: Thomson Datastream/DNB Markets 6

7 The World Is Undoubtedly Still Thirsty For Oil - US demand growth strong at low prices Asia less price elastic, driven by population growth and a growing middle class 7

8 Million b/d Global Oil Demand Keeps Growing - Not easy to see any peak in oil demand for the next 5 years Global Oil Demand Source: IEA 8

9 World Population By Country (Source: United Nations Population Division 2017) Mexico (129m) Canada (37m) USA (324m) 4.3% of the world Colombia (49m) Peru (32m) Argentina (44m) Venezuela (32m) Brazil (209m) Germany (82m) France (65m) UK (66m) Italy (59m) Spain (46m) Poland (38m) Romania (20m) Nigeria (191m) Ukraine (44m) Kenya (47m) Congo (81m) Turkey (81m) Iraq (38m) Iran (81m) Algeria (41m) Morocco (36m) Egypt (98m) Saudi (32m) Sudan (41m) Yemen (28m) Ethiopia (105m) Tanzania (57m) Russia (144m) 54% of the world: China (1.41b) India (1.34b) Indonesia (264m) Pakistan (197m) Bangladesh (165m) Japan (127m) Philippines (105m) Vietnam (96m) South Africa (56m) Thailand (69m) Myanmar (53m) South Korea (51m) Nepal (29m) Malaysia (32m) North Korea (24m) Taiwan (24m) Sri Lanka (21m) Cambodia (16m) Australia (24m) 9

10 Million b/d Global Oil Demand Keeps Growing - Slightly weaker growth in non-oecd but stronger in OECD Year on Year Global Oil Demand Source: IEA Non-OECD Demand Growth Net Global Oil Demand Growth OECD Demand Growth 10

11 Strong Price Response To Demand In OECD Europe - For each $/b Brent price decline OECD Europe demand grows 9 kbd Oil demand growth in kbd European oil demand growth USD/b Million b/d Million b/d OECD Europe oil demand growth vs Brent price Europe oil demand growth Brent price real terms (RHS, reverse scale) Year on Year OECD Europe Gasoline Demand Source: IEA OECD Europe oil demand grows 9 kbd per 1 $/b price decline y = x R² = Brent real USD/b Year on Year OECD Europe Diesel Demand Source: IEA 11

12 The FID-slump From Will Hit The Market - The lack of FIDs are even more important than the lack of CAPEX, because we will soon run out of large startups 12

13 Million b/d Net Need Of 12 Mbd By 2021 Translates To 3 mbd Per Year Net Oil Need Of 12 Million b/d By 2021? (Assuming 2% net decline rate and oil demand growth of 1.2 mbd p.a) Source: DNB Markets, Rystad Energy Global output of crude, condensate and NGLs Observed decline from 2006-base (4.2%) Yearly global demand growth of 1.2 mbd Assumed 2% yearly decline from 2017-base 13

14 kbd Net Need For Shale Of 6.1 mbd From Average growth of 1.5 mbd per year required by US shale must grow from 4.3 mbd to 9.4 mbd 2016 vs 2020 Global Oil Balance Global crude, condensate and NGLs output in 2017 (IEA) 7.0 Net decline rate of 2% (half of last ten years) by Non-OPEC projects under development (Rystad Energy) 2.0 OPEC projects under development (Rystad Energy) 6.1 Required new shale oil to balance World liquids demand by 2020 (1.2 mbd pr year-2016 was 96.6 mbd) 14

15 What Kind Of Brent Price Is Required For Economic Barrels? - Our call on US shale in 2021 is 11 million b/d. The Brent price must then be higher than the range. Source for break even calculations: PIRA Energy - July 2017 (calculation using 10% cost of capital and is showing Brent equivalent prices, not wellhead prices) 15

16 Thousand b/d Million b/d Legacy Decline Rising Quickly As New Wells Are Completed - Since legacy production now increases again there would be a need to complete a larger number of wells each month to stay flat Legacy production decline vs new production Modelled Crude Oil Production 7 Shale Regions Decline rate pr well: 70%, 40%, 30% the first three years (87%), thereafter 5% per year If well completions stopped the 1-year decline would be 1.6 mbd in 2017, but 3 mbd in Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Legacy decline Source: EIA US Drilling Productivity Report Start ups new wells Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 Source: DNB Markets, EIA Drilling Productivity Report for Eagle Ford, Bakken, Permian, Utica, Marcellus, Haynesville, Niobrar a 16

17 Logistical Bottlenecks Emerging in The Permian Shale Patch - Growth in Permian production looks to be held back by lack of pipeline capacity until 2H WTI Midland vs MEH (USD/b) Jan2017 May2017 Sep2017 Jan2018 May

18 But Most Of US Crude Production Is Light (API above 40) - US shale is almost all light sweet crude US Lower 48 Crude production by gravity - Million b/d 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% US Lower 48 Crude production by gravity - Percent Heavy API<25 Intermediate Light API > 40 Light API > 40 Intermediate Heavy API< US Lower 48 Crude production by API gravity - Million b/d Jan-2016 Apr-2016 Jul-2016 Oct-2016 Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 Growth<25 Growth Growth US Refinery Intake By Average Gravity (API-number) 30.0 Jan-2010 Jan-2012 Jan-2014 Jan

19 Million barrels per day Conclusion: Most US Crude Growth Needs To Be Exported - This will have consequenses for crude differentials and freight costs US Crude Oil Exports (4-week mavg) 0.0 Mar2014 Mar2015 Mar2016 Mar2017 Mar Europe vs USA Arbitrage Brent vs WTI 1st month (USD/b) -1.0 Jan2016 Jul2016 Jan2017 Jul2017 Jan

20 Global Bunker Fuel Specs Are Changing In January Final decision taken by IMO to implement January 1 st

21 Crude Oil Refining Simplified 21

22 Million b/d Million b/d $/barrel crack spread $/barrel Brent price $/barrel $/mt What Will Happen To The Gasoil vs Fuel Oil Spread? - Gasoil vs fuel oil spreads set to blow out significantly & a repetition of the 2008-diesel squeeze or in 2020 gasoline squeeze???? Gasoil crack & Resid Fuel crack Becomes a mirror when all upgrading units are fully utilized 900 Gasoil vs Sing380 forecast (HSFO to coal parity and Gasoil gearing effect sending Brent to 100 $/b) Jan'05 Jun'05 Nov'05 Apr'06 Sep'06 Feb'07 Jul'07 Dec'07 May'08 Oct'08 Mar'09 Aug'09 Historic Gasoil crack Historic Resid Fuel Rtdml crack Jan'05 Jun'06 Nov'07 Apr'09 Sep'10 Feb'12 Jul'13 Dec'14 May'16 Oct'17 Mar'19 Aug'20 Jan'22 Historic DNB Forecast Forward 76.0 Global Refinery Throughput Gasoil Cracks Led Crude In price spike led by the diesel squeeze Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan'06 Apr'06 Jul'06 Oct'06 Jan'07 Apr'07 Jul'07 Oct'07 Jan'08 Apr'08 Jul'08 Oct'08 Source: IEA Global refinery runs Global oil demand Historic Gasoil crack (LHS) Historic Brent price (RHS) 22

23 Maybe Enough Gasoil/LSFO But What About HSFO Destruction? - Difficult for refiners to achieve enough fuel destruction by 2020, and will they be able to produce enough gasoil? - A yield shift from Mogas/Naphtha towards Middle Distillates just shifts the short position to Mogas/Naphtha 2020 vs Cumulative changes Mogas/Naphtha Middle Distillates LSFO HSFO Others Total Increased global refinery runs 3.8 mbd (1.3 mbd pr year) 1,026 1, ,800 Straight run yield 27% 36% 19% 15% 3% 100% Additional Fluid Catalytic Cracking (FCC) Additional Hydro Cracking Additional Coking Cutter stock saved Additional Vacuume Gasoil Desulfurization (VGO HDS) Additional Resid Fuel Oil Desulfurization (Resid HDS) Total supply addition 1,526 2,268 1,122-1, ,801 IMO 2020 change (assuming 18% scrubbing/cheating) 2,400 1,100-3,000 Demand change outside the shipping sector 1,500 1,200 Deficit/Surplus 26-1,332 1,570 What will the bunker spec change require? A) Increased refinery throughput of middle distillate rich crude oils - Increase in global runs Ytd 2017 is 0.8 mbd B) A global refinery yield shift towards gasoil/diesel, probably at the expense of gasoline output (1% change in yield is worth 0.8 mbd) C) All the new capacity estimated above must come online There would still not be enough capacity to "destroy" enough High Sulfur Resid Fuel High Sulfur Resid Fuel must find it's way onshore into power generation/industrial production in Africa, Middle East and Asia 23

24 DNB Markets Commodities DNB Markets Commodities in brief Oil & Gas - Research and reports DNB Markets Commodities serves corporate clients of DNB Bank ASA globally with advisory, market analysis, hedging, and origination within commodities. Cost-efficient and flexible trading in risk management instruments with tailormade collateral solutions. Transacting derivatives on credit lines thereby reducing capital constraints. Experienced dealers, traders and analysts with industry background offering 24/7 markets coverage with wide market access. Daily market reports and in-depth commodity market analysis. Global reach with dedicated Commodity teams in Oslo, Stockholm, London, New York, Singapore and Shanghai. Sector commodity offering Global presence Oslo, Sales & Trading London, Sales New York, Sales Oslo, Research Nils Fredrik Hvatum Nils Wierli Nilsen Ane Tobiassen +44(0) Fredrik s. Andersen Torbjørn Kjus Kenneth Tveter André Rørheim Singapore, Sales Salvatore Vaccaro Karl Magnus Maribu Sebastian Malmstein Erik Warren Seng Leong Ong