Developments and challenges in oil markets

Transcription

1 Multi-year Expert Meeting on Commodities Palais des Nations, Geneva March 2010 Developments and challenges in oil markets by Mr. Benoit Lioud Head of Analysis, Mercuria Energy Trading Switzerland "The views expressed are those of the author and do not necessarily reflect the views of UNCTAD"

2 Multi-Year Expert Meeting «Commodities and Development» Developments and challenges in oil markets Geneva March 2010 Benoit Lioud

3 What was the message last year? 100 $/bbl Energy supply remain very tight, not to say tighter than before the crisis Producers are reluctant to enter long term markets $ April Spot Once oil demand restarts, the market will switch into backwardation 5 years

4 Where are we today? $/Bbl Prices have now reached the level that was foreseen on the forward market last year And the contango has nearly vanished 80 March April Fundamentals Supply and Demand factors have not really changed Supply is still constrained, and the financial crisis has delayed many investments

5 What s next?

6 Message 1 Oil demand growth has definitely shifted to the East Projected Annual Oil Growth MMbbl/d Monthly oil imports (diff. to 2007) Source: Pira China : The automobile sales volume last year reaches a record high of million, which is about 46% higher than that of 2008 Source: Morgan Stanley Economic growth in Eastern countries is still energy intensive The oil demand factors will never be the same as consumption patterns do not compare with OECD ones Towards more volatility

7 Message 2 : long term prices found a new equilibrium After a strong unusual correlation with spot prices, long term oil markets found an equilibrium 160 $/Bbl 140 Crude oil spot prices Long term (5 years) oil prices A stable long term price signal is required to trigger new investments

8 And oil markets seem to now behave in a more «classical» way Brent Crude oil Term Structure Markets fluctuate between Contango and Backwardation Economic growth New consumption patterns Impact of alternatives and eventually find an equilibrium New consensus? At 60-90$ OPEC strategy E&P costs Non-OPEC production Impact of CO2 policies A long term price consensus remains stable when liquidity is available along the curve

9 But the liquidity along the curve is very scarce Nymex WTI Futures : daily volumes Thousands of lots 300 M1 Maturities +250% M Adjustments along the curve create additional volatility Higher volumes hardly extend to longer term maturities

10 Message 3 : Globalization and interconnection of oil and financial markets How to find a price consensus? Linked by a virtual price convergence Many new entrants Global clearing lowers the credit risk, but increase the short term liquidity requirements Oilseeds Bio energy Weather Shipping CO2 Oil Energy Coal Fertilizers Derivatives Credit Debt Forex Interest Rates Metals & Precious Equities Water? Biomass Soft Capital Financial techniques Liquidity Finding a consensus becomes more complex and translates into higher volatility

11 This obviously attracts more and more volumes on oil markets Million barrels equivalent 1,600 1,400 1,200 1,000 After a short period where volumes decreased, the trend is up again Global trading volumes on Oil Exchanges All oil exchanges ICE/IPE Daily oil world consumption - Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Oil Futures markets have definitely found another function, different than pure oil pricing The markets will need to adapt new market trading schemes

12 Investment money is now a major market participant 40 % of the open interest of the Nymex WTI crude future contract are held by non Commercials WTI prices & Share of non-commercials traders in the Nymex open interest % % 40% 35% 30% 25% 20% 15% 10% 5% - 0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 WTI Prices in $/Bbl % of open Interest held by non-commercials

13 Conclusion In search of liquidity Globalization of markets New fundamentals Different consumption patterns New trading flows Electronic platforms New markets Deterioration of credit worthiness Scarcity of capital Global clearing Transfer to Futures markets Margin calls Lower OTC liquidity Long term consensus? New Regulation Market access New limit systems Energy markets will certainly experience new episodes of volatility

14 Thank you