Recent oil market trends and future drivers

Transcription

1 Multi-year Expert Meeting on COMMODITIES AND DEVELOPMENT 6-7 April, Geneva Recent oil market trends and future drivers by Mr. David Fyfe, Head of Industry and s Division, Editor, International Energy Agency, Paris "The views expressed are those of the author and do not necessarily reflect the views of UNCTAD"

2 Recent Trends & Future Drivers UNCTAD Expert Meeting on Commodities and Development Geneva, 6 April David Fyfe, Head of Industry & s Division, Editor, International Energy Agency, Paris

3 Economic downturn driving oil market sentiment for now

4 But looking for one smoking gun for price swings may be futile? Jan-88 Feb-89 Mar-90 Post-2003 surge followed a remarkable period of stability Many factors drove price rises demand strength, tight spare capacity, low stocks refining bottlenecks, geopolitical and peak-oil fears, financial flows & exchange rate fluctuations Apr-91 May-92 Supply/demand became increasingly price inelastic, re-inforcing the rise No single cause of lower prices either, but weaker economy and demand destruction are key Jun-93 Jul-94 Dated Brent, $/bbl Aug-95 Sep-96 Oct-97 Nov-98 Jan-00 Feb-01 Mar-02 Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08

5 Weakening economy drives demand revisions $/bbl Source: Platts Crude Futures Front Month Close Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 NYMEX WTI ICE Brent Two year demand contraction in 08/09 first since early-1980s OECD hit hard, but clear signs that non-oecd is slowing now too Latest GDP estimates headed lower (-1% to -3% for ), implying more demand revisions to come? But prices bottoming-out in the face of OPEC supply cuts, and weakening dollar. mb/d Jul-08 Aug-08 OMR Demand & GDP Y-o-Y Forecast Evolution % 5 World GDP Grow th Total Demand 4 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb

6 Global demand: still headed south Global Demand Growth 2007/2008/ thousand barrels per day b/d World: Total Product Demand Jan Apr Jul Oct Jan North America Latin America Global oil product demand is estimated at 85.7 mb/d in 2008 and projected to average 84.4 mb/d in Yearly growth: -0.4% (-370 kb/d) in 2008; -1.5% (-1.2 mb/d) in Two year decline first since early-80s, - sharpest drop since 1970s March OMR revisions largely due to reassessment of demand prospects in OECD North America, non-oecd Asia and the FSU Colder temperatures January (Europe/N.America) & February (Asia) didn t materially boost the market Europe Africa Middle East 415 FSU Asia 128 Global Demand Growth (mb/d) % % % -334 Source: IEA 5

7 OECD demand has been worst hit, but growth engine China also slowing fast China assumed GDP and oil demand mb/ d September OMR November OMR January OMR 2008 demand demand GDP % November-January saw first demand decline since June 2005 Industrial, freight & power indicators weak as export markets hit Net exports of gasoline and jet fuel China and other slowing non-oecd economies undermine earlier claims of de-coupling

8 Crude contango on stock overhang $/bbl NYMEX WTI Forward Curve Source: Platts Apr Feb Mar Apr-09 days OECD Total Days of Forward Demand Jan Mar May Jul Sep Nov Jan Range Avg January stocks rose counter-seasonally by 9.0 mb OECD industry stocks at 2,712 mb, 500 kb/d build in 4Q08 (normal 750 kb/d draw) Upward revision to December inventories plus increasing January stocks pushed end-january forward demand cover to 58.7 days, 4.6 days above a year-ago Preliminary data shows February total oil draw of 2.0 mb Short-term floating storage stabilised in the mb range in February Recent narrowing of the WTI and Brent futures curves notionally make the practice less attractive, but scant sign storage is being drawn down This to act as drag on prices even as OPEC cuts begin to reduce on-land stocks? 7

9 Evaluating supply-side impacts - I Change to supply forecast, net of 2008 baseline changes, mb/ d OPEC crude OPEC gas liquids Non-OPEC Supply also affected, on weak demand, low prices, credit crunch & investment slippage forecast already down by 1.4 mb/d since July, excluding 2008 baseline changes Canada & Russia taking a hit in terms of investment & likely output Sub-$30/bbl required before substantial shut-ins of current output occur? But impact of lower spending on both new projects and current mature output

10 Evaluating supply-side impacts - II Upstream project slippage, kb/ d total peak project capacity now delayed beyond mb/d of short term capacity growth cancelled or deferred post-2011 Gross cancellations & delays for exceed 6 mb/d Some of this will still come on stream, only much later Non OPEC Surveys suggest 10-20% curbs on upstream spend IEA forecast already assumes non-opec loses 2.5 mb/d-plus each year to decline Reduced drilling, EOR etc could cost non-opec further OPEC Reduced spending to boost non-opec decline? annual supply loss, mb/ d net non-opec decline rate 6.50% 7.00% 7.50% 8.00% 8.50%

11 OPEC s compliance high estimated at 80% Output below 28 mb/d in February mb/d OPEC Effective Spare Capacity Iraq Ven/Nig OPEC Production (RHS) Quarterly range for Call on OPEC Crude/Stock Change incl. Angola and Ecuador (RHS) kb/d 34,000 33,000 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25, ,000 Effective spare capacity (excl. Iraq/Venezuela/Nigeria) at around 5.19 mb/d in February Source: IEA

12 February OPEC cuts of around 1mb/d Only 890 kb/d above target OPEC Crude Production (million barrels per day) Dec 2008 Jan Feb Supply Supply Supply Sustainable Production Capacity 1 Spare Capacity vs Feb Supply Implied January Target February Supply vs Target Percent Compliance Algeria % Angola % Ecuador % Iran % Kuwait % Libya % Nigeria % Qatar % Saudi Arabia (0.10) 108% UAE % Venezuela % OPEC % Iraq Total OPEC (excluding Iraq, Nigeria, Venezuela 5.19) Saudi Arabia is actually below its apparent target But most other member countries still have a long way to go 15 March meeting decided to hold steady

13 Ultimate impact of OPEC cuts depends on demand Potential Trend of OECD Stocks: Scenario - OPEC at Current Target April Onwards Days OECD Total Jan M ar M ay Jul Se p Nov Jan Range Avg Scenario Strictly adhering to its output targets, OPEC would begin to tighten OECD stocks from 2Q09 under current demand scenario (-1.2 mb/d in ) Were demand to fall 2 mb/d, draws in OECD stocks wouldn t occur until 3Q09 Are there more cuts to come in May?

14 Basic tenets of mid-term forecast robust even if short term market has changed

15 Short/medium term demand trends mb/d (5) OECD vs. Non-OECD Cumulative Demand Growth by Use Non-OECD - Other Non-OECD - Transportation OECD - Other OECD - Transportation Intensity (1995 = 100) OECD Non-OECD Sectoral shift: transport fuels account for bulk of demand growth Growth will continue to come from non-oecd, notably Asia & Mid East intensity to continue to diminish on proactive policy measures and efficiency improvements Source: IEA 14

16 OECD demand started to decline in 2006 Y-o-Y 8% 6% 4% 2% 0% -2% -4% -6% Demand Growth vs. Price OECD Dem and Non-OECD Demand Real Brent (2005 US$/bbl) $/bbl

17 Price subsidies have sustained non-oecd demand growth Iran Russia China Saudi Arabia India Venezuela Indonesia Egypt Ukraine Argentina South Africa Kazakhstan Pakistan Malaysia Thailand Nigeria Chinese Taipei Vietnam Brazil Gas Coal Electricity Billion dollars Energy subsidies in the 20 largest non-oecd countries hit $310 billion in 2007 for many, an unsustainable economic burden & large environmental impact

18 Which way forward for demand? Bullish scenario The global economy rebounds quickly (2010?) thanks to fiscal & monetary stimulus Efficiency moves are ignored as oil prices remain relatively low Annual oil demand growth back to circa +1.5 mb/d levels eventually, a repeat of the great tightening ( ) as limited investment & access constraints result in a supply crunch Bearish scenario The economic downturn is protracted little or no GDP growth for several years Efficiency goals are aggressively pursued despite low prices tighter US CAFE standards, hybrid/electric cars Annual oil demand growth nearer mb/d, as non-oecd growth barely offsets declining OECD demand and peaking demand leads to high spare capacity 17

19 Supply growth already sticky, key risks above-ground BELOW- GROUND SECTOR MATURITY FORCE MAJEURE HOST GOVERNMENT Above ground factors outstrip below ground Impact is the same - higher costs, project delays and lower output INDUSTRY CYCLE but some above ground risks are reversible Source: IEA 18

20 Structural shift to difficult oil but cyclical element to costs too Cyclical pressures Structural pressures Cost curves have moved higher, $60-80/bbl for some oil sands projects Deep water not far behind But some cyclical easing of earlier cost inflation also now evident So picking an arbitrary ideal price makes little sense Source: IEA 19

21 Even before market turnaround, project slippage was endemic Volume (mb) Impact of Upstream Project Delays Lost Volume Cost Over-run Cost (%) 350% 300% 250% 200% 150% 100% 50% 0% Galoc Yme Neptune Horizon Volve Dalia Banyu Urip Upper Zakhum Atlantis Frade Mangala etc July MTOMR found slippage the key constraint on supply growth Typical doubling of investment costs & months delays Economic slowdown, weaker crude & credit squeeze intensify delays? Current Russian & high cost North American production to be affected Prospect of strategic slippage by OPEC? Eventual offsets via lower costs & distressed producer policy shifts? Shah, Asab, Sahil Pazflor Pearl GTL Joslyn AFK Bonga Thunder Horse Kashagan 20 Source: IEA

22 November assessment of OPEC spare capacity higher than July MTOMR but market easing could be short lived mb/ d OPEC Spare Capacity Jul-08 Nov OPEC effective spare capacity now circa 5 mb/d, and potentially at 3.5 mb/d in 2013, vs. 1 mb/d seen in July Does not fully reflect impact of lower price & credit squeeze on investment Also assumes OPEC does not strategically slip key capacity expansions But L-shaped demand recovery could keep spare capacity higher for longer Longer term, 3% spare capacity is still tight by any measure market pause for breath rather than permanent reversion to lower prices Source: IEA 21

23 Summing Up 2008 and : first consecutive global demand declines since the early-1980s, on widespread economic slow-down Chronic uncertainty over depth & duration of downturn But demand growth, albeit weaker, should resume after 2010, driven by transport/petrochemical demand, largely Asia & Middle East Supply was already proving inelastic during the phase of rising prices, with new sources of oil getting more difficult & costly Cyclical cost pressures now easing and some host governments could revisit access and investment policies but weak demand, low prices & credit squeeze will now curb investment, reducing global supply by 1-2 mb/d during / potentially more in the longer term market pause for breath may be welcome short term, but risks weakening focus on investment in new supplies and fuel efficiency