Oil Market Outlook. Oslo, September 2017

Transcription

1 Oil Market Outlook Oslo, September 2017

2 World economic outlook World GDP growth of 3.5% expected in 2017, up from 3.2% in 2016 (IMF-July 17) Broad-based recovery, growth picking up both in industrialized and emerging economies GDP projections slightly reduced lately for US due to tighter fiscal & monetary policies, while adjusted higher for Euro Area and Japan Prospects improving from buoyant financial markets and cyclical recovery in manufacturing Trade growth nearly doubling to 2.4% in 2017 from 1.3% in 2016 (IMF) Uncertainties/concerns Rising geo-political tensions Productivity growth slowing Inward looking trade policies posing risk to trade growth (US, post Brexit) High income inequality Deleverage of Government bonds, US$ 13,000 billion issued globally since 2008 Chinese credit growth and financial market leverage U.S. 2.4 % 1.6 % 2.1 % 2.1 % Euro Area 2.0 % 1.8 % 1.9 % 1.7 % Japan 1.1 % 1.0 % 1.3 % 0.6 % China 6.8 % 6.4 % 6.7 % 6.4 % India 8.0 % 7.1 % 7.2 % 7.7 % World 3.4 % 3.2 % 3.5 % 3.6 % World economic recovery is gaining pace! Source: IMF, L&S Research 2

3 Oil market rebalancing taking longer than expected Macroeconomic outlook World economy picking up speed in 2017 Broad-based recovery both in industrialized and emerging economies Trade growth expected to double to 2.4% in 2017 (WTO 2016: 1.3%) Oil demand Global oil demand grew strongly year on year by 2.3 mb/d (2.4%) in Q217 World oil demand growth expected to grow by 1.6mb/d in 2017, slowing to 1.4 mb/d in 2018 (IEA, Sept-17) Oil demand in 2017 should reach 97.6 mb/d US oil production has been growing faster than expected. Production outages caused by hurricanes Harvey and Irma could take weeks to normalize. Oil supply OPEC s 1.2 mb/d cuts and Non-OPEC s 0.6 mb/d cuts rolled over through Q1-18. Ministers discussing extending the agreement to end-18 OPEC crude production dropped to mb/d in Aug-17 (IEA), after renewed turmoil in Libya and reduced output from other members Oil market outlook Oil price firming on strong demand, reduced OPEC output and production outages (Libya and the US) Longer term, depletion of reserves and declining production of large fields need to be addressed 3

4 OECD crude & products stocks OECD industry stocks fell in June by 19.2 mb to 3021 mb, but are still well above the 5 year average OECD total oil stocks in days of forward demand reduced to 63 days in June OECD America crude stocks dropped counter cyclically in June by 10 mb to 1606 mb, while stocks of oil products built by 11.8 mb to 774 mb. Chinese commercial crude stocks gained 9.6 mb in June to 381 mb Sources: Lorentzen & Stemoco Research, IEA, China Oil, Gas and Petrochemicals Lorentzen & Stemoco 4

5 North American oil products demand North American demand growing a faster pace US oil products demand averaged 19.8 mb/d in Q2-17, up 0.82 mb/d y-o-y Gasoline consumption recovered strongly in Q2-17 due to firm employment data and increased vehicle miles travelled while efficiency gains should keep have some offsetting effects going forward Gasoil demand, mirroring industrial activity, grew by 0.25 mb/d in May (+6%) y-o-y Total US demand for 2017 forecasted at mb/d up 0.21 mb/d from 2016 Canadian demand grew by 15 kb/day y-o-y in Q2 Mexican demand continued to decline by 0.45 mb/d y-o-y in 2017 Source: IEA, Aug-17 Lorentzen & Stemoco 5

6 Chinese oil product demand growing faster, domestic production slipping Chinese oil product demand showing strong gains in 1H17, pulled up by industrial activity Chinese demand grew by 0.65 mb/d in the 1H17 and a significant acceleration of growth relative to 2016 Accelerated gains in industrial activity has resulted in strong growth in LPG and naphtha demand Domestic production totaled 3.94 mb/d in June and is expected to slip by 0.15 mb/d both in 2017 and 2018 Source: Lorentzen & Stemoco Research, IEA Aug-17 Lorentzen & Stemoco 6

7 India oil demand growth slowing Indian oil products demand to grow by 135 kb/d in 2017 Impacts of Indian currency reform and withdrawal of 86% of all cash in the economy continues to have negative impact on the economy Products demand expected to grow by 135 kb/d in 2017, mainly driven by LPG and gasoil demand, increasing to 275 kb/d in 2018 Reduced «Goods and Service Tax» is expected to boost car sales after July LPG demand expected to continue growing strongly as the Government aims to switch 5 million new households to LPG use by 2019 Source: Lorentzen & Stemoco Research, IEA Aug-17 Lorentzen & Stemoco 7

8 OPEC & Non-OPEC production cuts could be extended through 2018 OPEC crude production averaged 32.2 mb/d in 1H-17 OPEC quota compliance at 86% of the pledged 1.2 mb/d cuts in 1H17 Recent production increases from cut-exempt Libya reversed in August Source: IEA, Oil Market Report Aug-17 8

9 Non-OPEC crude supply commitments Non-Opec countries (Russia, Azerbaijan, Kazakhstan, Mexico and Oman) pledged cuts of 558 kb/d to be phased in gradually from Jan-17 Decision on May 25th to roll over cuts through Q in agreement with OPEC and the ministers are contemplating to extend the cuts through 2018 The compliance rate for the first seven months of 2017 has been about 60% and was 67% for the month of July Source: IEA Oil Market Report April-17 9

10 Global E&P spending (onshore and offshore) E&P investment bottomed in 2016 Decline rates of existing fields is lower than first believed due reduced E&P costs as it is a function of both geology and reserve characteristics as well as economics Annual decline rates have been estimated in the 4.5% (Cera 2016, based on study of 811 fields) to 8% rate cited in many other studies As a result, we expect that investors will find attractive investment opportunities in the oil sector both onshore and offshore Increasing offshore sector interest follows dramatically lower break-even levels for new projects in the North Sea and in the Gulf of Mexico with reductions of up to 50% since 2014 A stronger upward trend in investment is expected from 2018 onwards Barclays expect spending to increase 7.3% over

11 US oil production shows strong recovery since mid-2016 How quickly will US crude and NGLs production recover from Hurricane impacts? US oil production more resilient to low oil prices than expected due to production of fracklog as well as sharply lower drilling costs and efficiency gains US energy sector capital spending totaled US$ 19.8 bn in Q1-17, a near trebling compared to Q1-16 US oil rig count has increased from 300 units in May-16 to 763 units in August-17 US crude production was 9.5 mb/d in August, versus 9.3 mb/d expected for calendar 2017 (EIA) US crude production dropped by 0.75 mb/d in week 36 due to impact of Hurricanes Sources: Lorentzen & Stemoco Research, Reuters, EIA, IEA, Baker & Hughes Lorentzen & Stemoco 11

12 OECD commercial stocks of crude & products OECD crude & product Industry stocks were 165mb above 5-year avg. OECD commercial stocks fell by 19.2 mb in June to 3021 mb OECD America crude stocks drew by 10.7 mb in June Chinese commercial oil stocks increased by 9.6 mb/d in June to 381 Preliminary data suggest a draw in OECD commercial stocks in June of 9.2 mb/d Stock draws expected to accelerate in 2H17 Sources: Lorentzen & Stemoco Research, EIA, IEA Lorentzen & Stemoco 12

13 Oil market balance is tightening Global oil demand in Q2-17 was 0.4 mb/d greater than supply Oil supply may develop slower than expeced due to Saudi Aramco planned offering in 2018, urgent need to boost valuation through higher prices US production could be lower than expected due to hurricane impact and lower E&P Capex Global oil demand expected to remain well above supply for the rest of year Source: Lorentzen & Stemoco Research, EIA 13

14 Oil price forecast L&S base case forecast for 2017 was US$ 55.7 L&S base case forecast for 2018 is US$ 58 bl (average) and US$ 60 bl by year end Source: Lorentzen & Stemoco Research, Indexmundi 14

15 Oil market outlook summary 2017 Global oil demand growth set to be stronger than projected (IEA) OECD commercial stocks were 3016 mb in July and the surplus reduced to 190mb above the 5 year average reference point Rapid US shale production growth (EIA: 9.3 mb/d in 2017, 10.0 mb/d in 2018), but Aug-Sept production and demand reduced due to Hurricane impact ME Gulf political tension seems to be easing Short/medium term oil price outlook firming US producers may need over US$ 50 bl to maintain production Environmental concerns slow down transportation sector demand growth (diesel ban/restrictions in large cities through substitution (LNG/CNG fuel, electric propulsion) Renewable energy (wind and solar) becoming profitable without subsidies at current oil prices Depletion of reserves and decline in production from large oil fields have been off the agenda for some time, but needs to be addressed through a sharp increase in E&P spending Recent declines in large oil fields masked by boost in production from many small fields incl. shale, where decline rates tend to be higher Source: Lorentzen & Stemoco Research Lorentzen & Stemoco 15

16 Offshore market review & outlook 2017 Global upstream E&P spending expected to grow by 5%, boosted mainly by sharp gains in US on-land activity Renewed sector interest following break-even levels reductions of up to 50% for new projects in North Sea and Gulf of Mexico since 2014 Spot day rates for certain types of offshore support vessels have improved while others still under pressure PSVs (production support vessels) > 900 m2 have made solid spot market rate gains over 2016 levels AHTs (anchor handling tugs) > 20k bhp have seen spot rates coming under pressure TC rates for most types of offshore support vessels have been fairly stable at low historical levels Rates for drilling rigs, both Jack-Up and Floaters are still under pressure Ongoing industry consolidation will ease price competition 2018 onwards Global upstream E&P spending is expected to increase by 7% in 2018 (SEB spending Survey) assuming of crude prices in the mid- US$ 50 s bl Pick-up in activity in the North Sea and Gulf of Mexico where investments appear more interesting based on firming oil prices and sharply lower operating costs Depletion of reserves and decline in production from large oil fields have been off the agenda for some time, but needs to be addressed through increased offshore E&P spending in the next 2-3 years The expected increase in E&P spending will boost demand for drilling rigs and offshore supply ships Source: DNB Markets, Lorentzen & Stemoco Research Lorentzen & Stemoco 16

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