Oil Markets: Where next?

Transcription

1 Oil Markets: Where next? Christof Rühl, Global Head of Research Singapore September

2 Content Oil and the economy: Recap Why did lower oil prices not support economic growth? OPEC vs. US two sides to supply Will demand growth balance the market? 2

3 Secular Stagnation? Real GDP growth 10-year moving average in percent Yield Real return on 10-year Government bonds 10 US UK 8% US 8 Japan France Italy Germany 6% Germany Japan 6 4% 4 2 2% 0 0% Source: The World Bank -2% 1983 '87 '91 '95 '99 '03 '07 ' Source: Datastream 3

4 Crude oil prices Weekly oil price Daily oil price and term structure $/bbl $/bbl $/bbl 140 Dated Brent M Dated Brent (rhs) Dated Brent Contango Jan-00 Jun-05 Nov-10 Apr-16 Source: Bloomberg Backwardation 20 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 4 Source: Bloomberg

5 Central bank assets and global growth projections Central bank assets Revisions to 5-year GDP growth forecast Trillion US dollars Percent 12 BOJ ECB FED 9 Apr-13 Apr pp pp pp China Emerging World Source: Bloomberg Source: IMF WEO 5

6 Where is the shot in the arm? Oil price decline Revisions to 2016 GDP growth projections US dollars per barrel 120 July Dated Brent GDP growth 5% Jan-15 Jul-15 Jan-16 Jul-16 4% 3% 2% 1% 20 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Source: Bloomberg 0% Source: IMF World US Advanced economies Emerging economies 6

7 Content Oil and the economy: Recap Why did lower oil prices not support economic growth? OPEC vs. US two sides to supply Will demand growth balance the market? 7

8 (1) US Dollar is appreciating Real trade weighted US Dollar index Index, Jan 1990 = rises for good reasons 15% real appreciation since July 2014 (20% since July 2011): Relatively strong US growth and productivity gains The end of QE in the US Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 Source: Bloomberg 8

9 (2) Households are deleveraging Household debt as a share of GDP US Euro area 1Q 2008 = 97.9% Change in household debt since peak: percentage points 70 4Q 2009 = 63.6% 60-7 percentage points Q 99 1Q 01 1Q 03 1Q 05 1Q 07 1Q 09 1Q 11 1Q 13 1Q 15 9

10 (3) Structural change: Importers are becoming producers Share of local consumption produced at home 90% US Brazil 80% Decline in imports since 1995: Kb/d 70% - 2,710 Kb/d 60% 50% 40% 30% Source: BP Statistical Review of World Energy 10

11 (4) The long decline of oil intensity Barrels of oil per $1,000 of GDP OECD Decline since 1979: - 42% - 48% - 58% 0.2 Non-OECD World Source: BP Statistical Review of World Energy 11

12 Content Oil and the economy: Recap Why did lower oil prices not support economic growth? OPEC vs. US two sides to supply Will demand growth balance the market? 12

13 The resilience of US shale production Million barrels per day Dollars per barrel Total US crude production US onshore crude production WTI price (rhs) Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Source: EIA 20 13

14 US shale break-even crude price US dollars per barrel Average 2016 WTI price so far: $41 per barrel Source: Rystad Energy Eagle Ford Bakken Permian (Delaware) Permian (Midland) Niobrara 14

15 US E&P: Operating cash flow does not cover capex Million $ 40,000 30,000 20,000 Operating CF Capex Free Cash Flow 10,000 (10,000) (20,000) (30,000) (40,000) (50,000) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 15

16 Global liquids production and market share OPEC (crude & NGLs) Selected countries (crude and NGLs) Market share 47% Market share November % November % 14% 45% 13% 44% 12% 43% 11% 42% 41% 40% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: IEA 10% Russia 9% Saudi Arabia US 8% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: IEA 16

17 Crude oil market share within OPEC Iran and Iraq Saudi Arabia Market share within OPEC 14% Iran 13% 12% 11% 10% 9% 8% 7% Iraq Market share within OPEC 34% 33% 32% 31% 30% 29% 28% 27% 6% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: IEA 26% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: IEA 17

18 Cumulative supply growth since 2Q 2014 Key OPEC producers Thousand barrels per day (kb/d) North American producers Thousand barrels per day (kb/d) 3,000 Iran Iraq 3,000 Canada 2,500 2,000 UAE Venezuela Net change KSA Nigeria 2,500 2,000 US Mexico Net change 1,500 1,500 1,000 1, (500) (500) (1,000) 3Q Q Q Q Q Q Q Q 2016 (1,000) 3Q Q Q Q Q Q Q Q 2016 Source: IEA Source: IEA 18

19 OECD inventories at historic highs Million barrels of crude oil and oil products 3,150 3,050 2, Range Average ,850 2,750 2,650 2,550 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Source: EIA 19

20 Content Oil and the economy: Recap Why did lower oil prices not support economic growth? OPEC vs. US two sides to supply Will demand growth balance the market? 20

21 Demand growth above long-term average European and US demand growth OECD and Non-OECD demand growth Million barrels per day (Mb/d) 0.4 Europe 0.3 US Million barrels per day (Mb/d) OECD Non-OECD 1.6 Mb/d Global growth 1.1 Mb/d 1.5 Mb/d -0.4 Average H Average H 2016 Source: IEA Source: IEA 21

22 Global supply and demand Incremental global supply and demand growth since 2Q 2014 Thousand barrels per day (kb/d) 4,500 4,000 3,500 3,000 2,500 ~400 kb/d 2,000 1,500 1, (500) Source: IEA North America Other FSU OPEC Global demand growth 3Q Q Q Q Q Q Q Q

23 Before Algiers: Where we stand Freeze production? YES Decision implemented? NO Decision implemented? YES NO NO YES Broken promises OPEC blinks Oil price supported Oil price under pressure Oil price supported Oil price under pressure Global market shares: - OPEC down - US up Market shares within OPEC constant (Iran up in case of a side agreement) Global market shares stabilizing Market share within OPEC: - those who cheat are up Global market shares: - OPEC down/ - US up Market share within OPEC: - those who blink are down Global market shares: - OPEC up - US down Market shares within OPEC determined by capacity Broken promises or OPEC blinking same same 23

24 Conclusion Oversupply (incl. inventories) to last for medium term Price ceiling restricts room for intervention ( freeze ) Meaningful intervention unlikely Effect of Capex cuts will support prices eventually 24