Transcript Energy Training Session - International Steam Coal
The Oil Price Outlook Through 2004
Graham Loveland: Principal Global Energy Group 27 January 2004
Copyright 2002 Global Insight, Inc.
Outline of Presentation
• • • • • • • • •
Brief summary of the message The current market & why have we been wrong?
Economic outlook Oil demand Non-OPEC production Inventories OPEC production, options and politics Price scenarios Factors to watch through 2004 4/30/2020
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Brief Summary of the Message
• • • • • •
Price forecasts low because demand high GI still expects a price fall in Q2, because… The reduced call on OPEC crude is too great for OPEC to be able to agree suitable cuts But the base WTI forecast is now higher, $26/bbl Clean products markets are tight. Gasoline prices likely to be high this year Major uncertainties: demand, stocks, OPEC cohesion 4/30/2020 3
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Current Unusual Market Features
• • • • • • •
Very high crude prices whilst OPEC openly frets about a price fall and analysts expect one More worries about US gasoline stocks than distillate stocks US spec changes
complex gasoline market Iraq production rising but security? bottlenecks? Record high European product price spreads to crude for the time of year Uncertainty about Russian export intentions Uncertainty about Chinese import intentions 4/30/2020 4
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Undershooting the Price
Successive forecasts of WTI price 38 36 34 32 30 28 26 24 22 20 J a n-0 3 Fe b -0 3 M a r-03 Apr-03M a y -0 J 3 un -0 3 J ul -0 3 Aug-0 3 Sep -0 3 O c t-0 3 Nov -0 3 Dec -0 J 3 a n-0 4 Fe b -0 4 M a r-04 Apr-04M a y -0 J 4 un -0 4 J ul -0 4 Aug-0 4 Sep -0 4 O c t-0 4 Nov -0 4 Dec -0 4
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Actual Jul GPM Aug GPM Sep GPM Oct GPM Nov GPM Dec GPM Jan GPM 4/30/2020 5
Most Analysts Expect a Price Fall (Or Did in Late December)
Brent/BFO
RIE Anon consultant CSFB CGES Purvin & Gertz Deutsche Bank
Average
Global Insight Source: Argus Global Markets 22.12.03
Q1 2004
28.03
26.70
28.00
25.70
26.70
25.00
26.69
27.08
Q2 2004
28.17
27.43
26.00
24.00
24.90
22.00
25.42
24.00
Av 2004
28.20
26.75
26.00
25.70
24.65
23.00
25.72
25.04
4/30/2020
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Why Did We Get It Wrong?
• • • • •
Economic recovery stronger than expected Total demand stronger than anticipated
•
January estimate of Q4 1.2 mb/d higher than July OECD “bottom up” stocks have not risen as expected
•
Reflecting stronger demand now apparent So US crude stocks have remained low, due to
• • • •
US refinery runs have been very high… Chinese imports have surged and pre-empted supplies Prices in backwardation – little incentive to build stocks Continuing SPR fill (average 160 kb/d in Q4, 275 kb/d in Dec) US gasoline stocks have caused concern, due to
• •
Very strong US autumn gasoline demand Refiners maximising distillates earlier in 2003 4/30/2020
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OPEC’s Saviour in 2003: Demand
Changing perceptions: Jan 04 vs. Jul 03 1.5
1 0.5
0 -0.5
-1 2003 Q3 2003 Q4 2004 Q1 2004 Q2 2004Q3 2004Q4 Demand Non-OPEC Call on OPEC 4/30/2020
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But 2004 Call Not Rising So Much
Call on OPEC crude + stock change 2H 2003 & 2004 28 27 26 25 24 23 22 21 Q3 Q4 Q1 Q2
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Q3 Q4 4/30/2020 Jul Aug Sep Oct Nov Dec Jan 9
The Price-Stock Relationship (1)
61 59 57 55 53 51 49 10 Brent price versus end month OECD stock cover in days 15 20 Brent $/bbl 25 30
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35 4/30/2020 10
The Price-Stock Relationship (2)
60 58 56 54 52 50 48 46 44 42 40 10 WTI price versus end month US stock cover in days 15 35 20 25 WTI price $/bbl 30
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4/30/2020 40 11
High U.S. Crude and Gasoline Use…
Crude Input to US Refineries kb/d 16000 15500 15000 14500 14000 13500 13000 Ja n F eb M ar A p r M ay Ju n Ju l A u g S ep O ct N o v D e c Ja n 1995 1996 1997 1998 1999 2000 2001 2002 2003 US Gasoline Demand kb/d 9500 9000 8500 8000 7500 7000 Ja n M ar M ay Ju l S ep N o v Ja n 2000 2001 2002 2003 1995 1996 1997 1998 1999
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4/30/2020 12
Result in Low Stocks
20 19 18 17 26 25 24 23 22 21 US Crude (ex SPR) Closing Stocks Days Cover 1995 1996 1997 1998 1999 2000 2001 2002 2003 US Gasoline Closing Stocks Days Cover 31 30 29 28 27 26 25 24 23 22 21 Jan Feb M ar A p r M ay Jun Jul Au g S e p O ct N o v D e c Jan 1995 1996 1997 1998 1999 2000 2001 2002 2003
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4/30/2020 13
GDP Growth Rates
6 5 4 3 -2 -3 -4 -5 2 1 0 -1 199 9 -Q 1 200 0 -Q 1 200 1 -Q 1 200 2 -Q 1 200 3 -Q 1 200 4 -Q 1
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200 5 -Q 1 World NAFTA Western Europe Asia & Oceania LAC excl. Mexico 4/30/2020 14
Global Demand Growth
2,500 2,000 1,500 1,000 500 0 -500 -1,000 -1,500 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Asia Africa Mid East FSU Europe L. America N. America Total World
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4/30/2020 15
Chinese Demand Growth
Estimated Chinese demand 6000 5000 4000 3000 2000 1000
Source: IEA
0 1Q19 95 1Q19 96 1Q19 97 1Q19 98 1Q19 99 1Q20 00 1Q20 01 1Q20 02 1Q20 03 1Q20 04 4/30/2020
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Reasons for Chinese Demand Growth
• • • • • • •
Rapid growth in car ownership plus road building Recovery in flying after SARS Warm summer 2003 increased AC demand Strong industrial demand due to export-led growth Construction boom increasing demand for energy intensive building products (steel, cement etc.) Rapid growth in electricity consumption which remains heavily reliant on oil Consumer stock building in anticipation of a price increase – how large?
4/30/2020 17
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What Is Chinese Demand, Really?
• • • • • •
No demand statistics are published Thus “demand” is actually “apparent demand” Derived from reported production plus net imports But trade statistics are notoriously inaccurate “Apparent demand” includes stock changes All that is certain is that demand is rising rapidly!
4/30/2020 18
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Non-OPEC Is Increasing
Non-OPEC year on year growth mb/d 2 Net increase 1.5
1.4
1.5
0.9
1 0.5
0.6
Others Africa FSU W. Europe N. America 0 -0.5
2001 2002 2003 2004 4/30/2020
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Iraq Is Increasing
Iraq production 3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04
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4/30/2020 20
OPEC Capacity Is Increasing
• • • • • • • • •
Saudi Arabia UAE Iraq Increases may just offset losses But will probably support cuts Infrastructure an issue but rising Iran Qatar Libya Algeria Nigeria Wants to keep ahead of Iraq Traditionally a “quota cheat” Will probably “cheat” Wants bigger quota. A “quota cheat” Wants bigger quota. A “quota cheat” VenezuelaNeed to make up for 2003 losses 4/30/2020
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But the Call on OPEC Is Falling…
OPEC production in 2003 and Call on OPEC crude in 2004 29 28 27 26 25 24 23 22 21 20 03 Q1 03Q2 03Q3 03Q4 04Q1 04Q2 04Q3 04Q4 4/30/2020
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The Outlook in 2004
• • • • • • • • • •
Rising non-OPEC production will cover rising demand OPEC usable spare capacity has recently been less than 1 mb/d OPEC capacity is rising, possibly by 2-3 mb/d Members will want to utilise new capacity if possible But the annual call on OPEC is falling by around 0.7 mb/d and… The cut needed for Q2 could be close to 4 mb/d Traditional quota non-compliers are unlikely to agree to (or make) large cuts Hence Saudi Arabia (with Kuwait and UAE?) may have to make larger than proportionate cuts We do not expect OPEC to be able to make this scale of cut But how much does SA want to support prices?
4/30/2020
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OPEC’s Price Targets
Dated Brent and successive OPEC Price Targets 35 30 25 20 15 10 5 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 03 4/30/2020
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Prices Generally Miss Targets
• • •
Even the $18/bbl target of the late 1980s was only moderately successful Prices virtually never reached the $21/bbl target Prices within the $22-28/bbl price band are due to special factors:
• •
Low non-OPEC investment following 1998/99 collapse Diminishing spare capacity in OPEC due to lack of investment and mothballing of spare capacity
•
Production losses in Venezuela, Nigeria, Iraq 4/30/2020 25
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Stocks (Days Cover) and Price
Total OECD days cover vs. Brent 35 30 25 20 15 10 5 95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 04 Brent price Days cover quarterly moving avge demand 62 60 58 56 54 52 50 48 4/30/2020
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Price Scenarios for 2004
40 35 30 WTI price scenarios through 2004 Stronger demand in 2003/2004 Non-OPEC & Iraq problems Good OPEC cohesion U.S. crude stocks slow to build 25 20 Weaker demand Non-OPEC & Iraq better than expected OPEC cohesion Changed perceptions as U.S. stocks rise 15 1q0 2 2q0 2 3q0 2 4q0 2 1q0 3 2q0 3 3q0 3 4q0 3 1q0 4 2q0 4 3q0 4 4q0 4 4/30/2020
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Factors to watch in 2004 (1)
• • •
Demand
• •
Impact of economic recovery on demand Chinese demand – will it slow down/be slowed by Gov’t action?
Supply
• • •
Russia/Caspian/W. Africa – how fast will they rise?
Iraq – will it hit an infrastructure bottleneck?
Nigeria – how much and when?
Stocks
• • •
US crude stocks – how low is low? Industry view (unconcerned) vs. market view (concerned) Gasoline – can stocks build in time for the driving season?
Where is all the oil going??
4/30/2020
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Factors to Watch in 2004 (2)
•
OPEC
• • • • • • • • •
Outcome of 4 February meeting?
Price versus market share? (logic vs. emotion) Dollar versus Euro for valuing revenue?
The future of the $22-28/bbl price band?
Reactions to a falling price?
Bottlenecks in rise of Iraq exports?
How to reintegrate Iraq?
How to reallocate quotas?
How to handle likely flagrant over-production from possibly several members?
•
How important is price support to SA if it means a large cut?
4/30/2020
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