Analysis and Perspectives: Crude Oil and Natural Gas Markets

Transcription

1 FIMAT for ASERCA, Mexico City, 28 February 2006 Analysis and Perspectives: Crude Oil and Natural Gas Markets Market Analysis and Perspective Hedging Price Risk Exposure Sal Gilbertie Senior Vice President Energy Marketing

2 High Volatility and Future Directional Price Risk Crude Oil Spot Price NYMEX (4 Year Weekly) Page 2

3 Crude Oil Supply/Demand Crude oil demand anticipated to rise approximately 1.5 to 1.8 million barrels per day in OPEC capacity expected to increase approximately 1.2 million barrels per day in Non-OPEC capacity estimated to increase by approximately 1.0 million barrels per day in Residual conservation efforts from post hurricane price spikes expected to remain throughout most of Long-term demand (late 2006 and beyond) from China, India, Pacific Rim to resume rapid incremental growth rates. Page 3

4 Crude Oil: Current Supply/Demand and Forecast Current Refinery turnaround season demand to be below normal. Markets are well supplied; prices will continue to fall from Katrina peaks. Gulf of Mexico production increasing daily, post-katrina supply disruptions will continue into the last half of Hurricane season will attract speculators (longs); producers and trade participants will be reluctant to sell hedge, but spot markets will remain fundamentally well supplied. Page 4

5 Crude Oil Price Analysis and Forecast Current trend is down Crude Oil spot price is nearly 16% lower than Katrina highs downtrend will continue. Spot crude prices will fall below the current 2006 lows. Projected 2006 demand will not stress supplies. Remaining 2006 Calendar swap price for WTI is well below forward curve prices for 2007 and beyond Forward curve prices reflect long-term supply fears. Forward curve will flatten as stocks continue to build and long-dated supply fears ease. Page 5

6 What the Crude Oil Market is telling us now Until the advent of the 2006 hurricane season, prices for 2006 will continue to decline toward the lower end of the price range as predicted by the Over-The-Counter (OTC) option markets. The one-year at-the-money Put/Call Option price is $10.00 suggesting a 2006 spot WTI Crude potential price range of approximately $50.00 to $ Page 6

7 WTI Crude Oil 3 Year Forward Curve M 9M 15M 21M 27M 33M Page 7

8 High Volatility and Future Directional Price Risk Natural Gas Spot Price NYMEX (4 Year Weekly) Page 8

9 Natural Gas Demand Current demand for natural gas running behind expectations. Private estimates (FIMAT proprietary) show 2 bcf/day of offline demand not related to warm winter weather. Demand in natural gas dependent manufacturing sectors (foam rubber, chemicals, fertilizer, etc.) still contracted in Katrina affected regions of US. Return of normal temperatures to US markets not enough to shift oversupply balance in late winter. Long-term demand (late 2006 and beyond) expected to recover by Q Page 9

10 Natural Gas Supply Supply will remain adequate for late winter demand. Potential for record storage levels at end of 2005/2006 winter season. Over 1 bcf/day of supply still offline due to lingering Katrina disruptions. Gulf of Mexico supply will continue to increase throughout 2006, as offshore Katrina damage is repaired and onshore processing units are brought back online. Potential for oversupply in summer. US domestic supply increases in 2007 (and beyond) will lag incremental demand increases. Page 10

11 Natural Gas: Current Supply/Demand and Forecast Winter demand was well below normal; remaining winterseason demand will not stress supplies. Gulf of Mexico production increasing daily, post-katrina supply disruptions will continue into the last half of Spot gas prices will determine level of summer buying for winter storage; April/October storage buying demand may be lighter than normal if spot summer gas is above $8. Hurricane season will attract speculators (longs); producers and trade participants will be reluctant to sell hedge, but spot markets will remain fundamentally well supplied. Page 11

12 Forward Supply/Demand and Forecast 2007 and Beyond Overall world demand will continue to outpace replacement rate discoveries of both natural gas and crude United States fundamental issues of structural natural gas tightness will remain. China/India/Pacific Rim incremental energy demand growth will continue to exaggerate upward price spikes in times of actual supply disruption or uncertainty. Natural gas will maintain an Mmbtu price premium within the energy complex, demand for competing fuels will increase. Page 12

13 Natural Gas Price Analysis and Forecast Current trend is down Natural Gas spot price is nearly 55% lower than Katrina highs downtrend will continue. Spot gas prices will fall below the current 2006 lows. Remaining 2006 Calendar swap price for US Natural Gas is well below forward curve prices for 2007 and beyond. Forward curve prices reflect last-half 2006 and multi-year winter supply fears. Forward curve will flatten as summer stocks build and longdated supply fears ease. Page 13

14 What the Natural Gas Market is telling us now Until the advent of the 2006 hurricane season, prices for 2006 will continue to decline toward the lower end of the price range as predicted by the Over-The-Counter (OTC) option markets. The one-year at-the-money Put/Call Option price is $2.00 suggesting a 2006 spot gas potential price range of approximately $5.50 to $ Page 14

15 69M Page 15 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 Henry Hub Natural Gas 5 Year Forward Curve 6M 9M 1Y 15M 18M 21M 2Y 27M 30M 33M 3Y 39M 42M 45M 4Y 51M 54M 57M 5Y 63M 66M 1M 3M

16 High Volatility Creates Financial Uncertainty Natural Gas Spot Price NYMEX (4 Year Weekly) Page 16

17 Financial Stability by Managing Volatility with Hedging Hedging: Invaluable Risk Manager s Tool Effective, consistent use of hedging mechanisms creates pricing and budgetary certainty. Stable natural gas costs diminish variability of financial results. Stable commodity prices and financial results allow focus on profit margins rather than damage control. Page 17

18 Page 18 High Volatility Created by the Unexpected

19 Hedging: More than just financial protection Hedging: Predictability of Results Most large corporations and an increasing number of state owned/quasi-governmental entities are hedging to stabilize cash flows and predictability of returns. Hedging assures budgetary compliance providing both financial and political protection for companies and executives who are under increasing regulatory and public scrutiny to manage economically critical assets. Page 19

20 Managing Volatility with Hedging Mechanisms Hedging Mechanisms Exchange Listed Futures and Options NYMEX, IPE, ICE, MexDer Over-the-Counter (OTC) Transactions Bilateral Swaps, Referentials, Customized OTC Contracts (commodity, instrument, location, pricing mechanisms, settlement dates) Page 20

21 Summary Overall price volatility in energy complex will remain intact. Supply/Demand fundamentals support near term downward price trend well into hurricane season will bring speculators back into market. Current Forward Curve and Option prices are good predictors of future volatility and pricing points. Hedging is primary tool of professional risk managers worldwide. Price and planning stability achieved through hedging now considered invaluable by executives and officials responsible for oversight of public and private assets. Availability of both exchange listed and OTC hedging mechanisms is plentiful and increasing rapidly. Page 21

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23 integrated global execution clearing liquidity strength Contact: Sal Gilbertie Senior Vice President, Energy Marketing Tel.: Gonzalo Zubillaga Ochoa Vice-President Latin American Group Tel.: +52 (55) Page 23