INTERTANKO Istanbul Tanker Event. Demand Developments. David Martin Oil Industry & Markets Division OECD/IEA

Transcription

1 INTERTANKO Istanbul Tanker Event Demand Developments David Martin Industry & s Division david.martin@iea.org - Istanbul, April 20-23, 2008

2 Medium-Term Outlook What is driving oil prices? Fundamentals or Speculation? What are the prospects for oil demand? What are the drivers? What are the prospects for oil supply Where is the response to prices? Refining industry growth Implications for crude trade Changes to regional product balances Conclusions

3 Prices

4 Crude prices set new record highs Physical Crude Prices ($/bbl) Source: Platts Jan Feb Mar Apr Dated Brent WTI M th1(adj) Dubai M th1(adj) NYMEX Crack Spreads ($/bbl) Front Month Closing Prices Jan Feb Mar Apr WTI breaks $119/bbl, Dated Brent grazes $116 Support from tight global distillate markets, weaker dollar and flare-up of tension in southern Iraq and Nigeria Fuel oil price not fully reflecting move up in crude oil prices 5 0 RBOB No.2 Heating

5 No single cause of high prices Investment costs Service sector Engineering Equipment Commodities Funds Product supply Demand growth Supply growth Structure of demand growth Marginal cost of supply Crude prices Environmental regulations Geopolitics Upstream capacity Crude grade availability OPEC policy Crude and product stocks Refining capacity

6 Spare capacity low by historical standards US$/Bbl OPEC 'Effective' Spare Capacity Dated Brent mb/d Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 0 Depends on your viewpoint, but strong demand growth, upstream bottlenecks, low refining flexibility, producer policy, lower inventory cover, geopolitics, speculative money and tight spare capacity all contribute

7 Tight OPEC Spare Capacity why it matters Nigeria in 2008?? 2-3 mb/d Iran in 2008?? 3-4 mb/d Iraq in 2008?? 2-3 mb/d Katrina & Rita 1.5 War in Iraq Venezuelan strike Iraqi export suspension Iraqi invasion of Kuwait Outbreak of Iran-Iraq war 4.1 Iranian revolution Arab oil embargo Six day war Suez crisis Major oil supply disruptions gross peak supply loss, mb/d

8 Is it the dollar? The weaker dollar may have had a day-to-day impact, but oil prices have been rising in all currencies In gold terms, (Gold is the traditional store of value or inflation hedge) oil prices have been falling.

9 A flood of hot money? Far from clear '000 Contracts 2,200 2,100 2,000 1,900 1,800 1,700 1,600 NYMEX WTI Mth1 Open Interest in all contracts Source: CFTC, Platts 1,500 Jan 07 Apr 07 Jul 07 Oct 07 Jan '000 Contracts NYMEX WTI Futures Mth1 Net Speculators Position Non-commercials' net position NYM EX WTI M th1 Source: CFTC, Platts -40 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 $/bbl NYMEX WTI Mth1 % 27% Non-commercial & non-reportable longs - % of open interest 25% 23% 21% 19% 17% 15% Source: CFTC, Platt s Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 NC & NR longs/open interest NYMEX WTI Mth1 $/bbl NYMEX Open Interest on a downward trend since July Recent rise within range Net non-commercial (fund) positions not abnormally high Speculative buyers high as percentage of Open Interest But not historically high Estimates commodity index funds up by $10bn since start of year But not out of line with flows in other years

10 But are speculators wrong? Mb/d 3.50 World demand growth exceeds Non-OPEC supply growth Every price peak since 2000 has been greeted with the cry that it is speculatively driven When we look back, there is a fundamental explanation Price is there to balance supply and demand Not just the spot market, but for medium term Where is the supply response? Demand absolute growth Supply absolute growth Seeing large investment, but so far little growth in non-opec supply If supplies fall short, OPEC has to fill the gap or prices have to rise

11 Rising marginal costs Source: IEA, Resources to Reserves, 2005 Tight service sector causes further cost inflation - $35 to $55/barrel? Call option for speculators/opec? Marginal cost of non-opec production influential when OPEC producing flat out When spare capacity exists, price OPEC are willing to keep spare capacity off the market is the key

12 Demand

13 Global demand growth North America Latin America Global Demand Growth 2006//2008 thousand barrels per day Europe Middle East Africa FSU Asia World demand is now estimated at 86.0 mb/d in (+1.3% over 2006) and is expected to average 87.2 mb/d in 2008 (+1.5%) Global oil product demand growth cut by 460 kb/d in our most recent report: revised up by 140 kb/d and 2008 revised down by 310 kb/d Marked revisions to GDP forecasts by the IMF New FSU methodology Global Demand Growth (mb/d) % % % Baseline adjustments and revised data submissions -16

14 Demand Growth- Medium Term Average Global Demand Growth /2002-/-2012 thousand barrels per day North America Europe FSU Middle East Asia Latin America Africa Avg Global Demand Growth (mb/d) % % % OECD: demand sustained by North America, which will represent 53% of the total by 2012 Non-OECD: Asia demand will account for 47% and the Middle East for 19% of the total

15 Non-OECD Demand Dominates Growth kb/d 2,500 2,000 1,500 OECD vs. Non-OECD Demand Growth OECD Non-OECD 1, Non- OECD 37% 1991 World Demand Non- OECD 45% 2011 World Demand OECD 63% OECD 55%

16 What is driving demand? OECD vs. Non-OECD Cumulative Demand Growth by Use mb/d OECD - Transportation OECD - Other Non-OECD - Transportation Non-OECD - Other (5) Geographical shift: demand growth will come from non-oecd countries mostly China and the Middle East Usage shift: growth will be fuelled by transportation fuels Subsidies in non-oecd countries Dieselisation trend, notably in Europe Limited role for biofuels less than 2% of demand by 2012

17 Supply

18 2008 Non-OPEC Supply Growth cut to 0.8 mb/d Plus 385 kb/d OPEC NGLs Non-OPEC Supply Growth 2006//2008 thousand barrels per day North America Europe FSU Middle East Asia Latin America Africa Angola and Ecuador included in OPEC throughout Regional Totals exclude biofuel growth Global Biofuels (kb/d) OPEC NGLs (kb/d) Total Non-OPEC Supply Growth (kb/d)

19 Non-OPEC supply growth v v Slow-down evident in past decade continues, 68% of net non-opec growth comes from FSU, notably the Caspian, Brazil deepwater, Canadian oil sands, GOM & biofuels also rise Mexico, North Sea & onshore/conventional US/Canada continued decline Europe N. America FSU L.America Mid East/Africa Asia plus OPEC NGL Total non-opec Supply Growth 3270 kb/d (1.4%pa) kb/d (1.1%pa) kb/d (1.0%pa) % of expected demand growth has to be met with OPEC crude

20 OPEC capacity growth : driven by price & market share aspirations kb/d 1,400 1,200 1, Annual Increments in OPEC Crude Capacity Algeria Indonesia Iran Kuwait Libya Nigeria Qatar Saudi Arabia UA E Venezuela Angola Iraq mb/d OPEC Gas Liquids Output Saudi Arabia Algeria UAE Qatar Nigeria Iran Others Resources may be there, but what will drive their ideal level of supply?

21 Global oil supply: above-ground risks exceed below-ground risks BELOW- GROUND FORCE MAJEURE Above ground risks are key in current market SECTOR MATURITY HOST GOVERNMENT Impact is the same - higher costs, project delays and lower output INDUSTRY CYCLE but some above ground risks are reversible

22 No imminent resource scarcity but supply response to high prices is slow Company planning prices are rising partly reflecting a higher cost base But access constraints, industry bottlenecks, financial factors & competing calls on capital are curbing the price elasticity of supply: delays are becoming endemic USD/b (Brent) oil-company "planning prices" source: SG Equity Research, SG Commodities Research, IEA

23 Refining

24 Global refining industry set for growth 2.5 mb/d Crude Distillation Capacity Additions OECD FSU CHINA ASIA MIDDLE EAST ROW Crude distillation capacity forecast to total 10.6 mb/d by 2012 Expansion of existing refineries account for 4.0 mb/d New projects account for a further 5.1 mb/d Capacity creep in OECD regions account for remaining 1.5 mb/d

25 Upgrading investment adds flexibility mb/d 2.0 Upgrading Capacity Additions Hydrocracking coking FCC RFCC Visbreaker Global refining system will benefit from addition of further upgrading capacity This will boost heavy sour crude processing ability Expansion focused on the addition of hydrocracking and coking capacity

26 Complexity increases faster than distillation mb/d Cumulative Additions by Refinery Type Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 Hydrocracking Coking Visbreaking Catalytic Cracking Hydroskimming and Lubes CDU Capacity Growth 1: Includes re-classification of refineries to more complex type, follow ing installation of upgrading capacity CDU capacity linked to coking units increases by 11mb/d Corresponding declines in cracking and hydroskimming capacity as upgrading capacity as refineries are upgraded to coking/hydrocracking

27 Rising costs hamper project progress

28 Growth in global crude trade Net Export Growth -12 for Key Trade Routes* (million barrels per day) +0.4 * Excludes Intra-Regional Trade OECD North America +0.6 OECD Europe China Other Asia

29 Regional crude export growth kb/d 1,600 1, Regional Crude Export Growth Africa FSU Latin Am Mid East OECD Eur OECD Pac Other Asia Intra-Regional Net Trade Growth -12 Mid East-Oth Asia Mid East-China Mid East -OECD Nam Africa-China Africa-OECD Eur FSU-OECD Eur FSU-OECD Nam FSU-China Africa-OECD Nam Lat Am-OECD Nam Mid East-Africa Mid East-Lat Am Africa-Lat Am OECD Eur-OECD Nam Mid East -OECD Eur Other kb/ d

30 Gasoline balance eases Rising European exports and increasing ethanol production, Brazil and US, offset Mexican and African import growth

31 Distillate balance relatively tight Diesel demand rises in North America and Europe, suggesting increasing reliance on Middle East and Asian imports

32 Fuel oil balance tightens North American imports decline, but European imports increase However, exports from the Middle East and FSU are declining, while Asian imports are also expected to increase rapidly

33 Conclusion No single cause of high prices Lack of supply-side response so far Refining issues Spare capacity How much is there, how much can be used? Demand is moderating in response to high prices Transportation fuel demand growth in OECD - weak Economic growth outlook key to medium term Subsidies continue to support non-oecd growth, but at what cost? Supply side response may come But considerable barriers in the way Constraints on investment remain Crude trade to increase, driven by changing regional outlooks for supply and new refining capacity