Embed Size (px)
Citation preview
Oil Market Outlook100 dollar oil – In the cards again?
Geopolitical events, a global bunker spec change plus the effect of CAPEX cuts in 2014-16
makes for a potent mix in 2020
DNB oil story in pictures & graphs
May 2018 - Torbjørn Kjus
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 662
US Scrapping Of Iran Nuclear Deal Pushing Long Dated Higher- After Trump scrapped the Iran nuclear deal we have seen a rally in the long dated part of the Brent curve
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 663
Geopolitical Risk To Oil Prices Is higher In 2018 Than In 2017- Libya, Nigeria, Venezuela, Iran & Iraq are producing close to their short term capacity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Millio
n b
/d
Libyan Oil Production
Source: IEA
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.5
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Millio
n b
/d
Nigerian Crude Oil Production (Not including condensate)
Source: IEA
1.0
1.5
2.0
2.5
3.0
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Millio
n b
/d
Venezuela Oil Production
Source: IEA
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Millio
n b
/d
Iran Oil Production
Source: IEA
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Millio
n b
/d
Iraqi Oil Production
Source: IEA
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18
Mill
ion b
/dYear on Year Venezuela Oil Production
Source: IEA
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 664
Global Onshore Stocks Drawing Down Significantly in 2017/18
5,100
5,300
5,500
5,700
5,900
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Millio
n
barr
els
Global Oil Stocks(Includes SPR but not for China)
5 year min 5 year average 2016
2017 2018 2018 forecast
2011-14 averageSource: JODI
53
55
57
59
61
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Days o
f dem
and covera
ge
Global Oil Stocks In Days Of Demand Coverage(Includes SPR but not for China, demand taken from IEA)
5 year min 5 year average 2016
2017 2018 2018 forecast
2011-14 averageSource: JODI, IEA
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 66
Continued Stock Draws In 2018 If OPEC Stays Flat
5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Millio
n b
/d
DNB Markets World Oil Supply-Demand Balance(Implied global stock change)
5 year range 5 year avg 2017 2018Source: IEA, DNB Markets
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 666
Global Economy Firing On All Cylinders- Best period we have seen since 2004-2006
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2003 2005 2007 2009 2011 2013 2015 2017
Global activity: DNB MacroScore Weighted Index
Source: DNB Markets
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2007 2009 2011 2013 2015 2017
DNB MacroScore Hard data
Consumption Production Orders Housing Exports
Source: Thomson Datastream/DNB Markets
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 667
The World Is Undoubtedly Still Thirsty For Oil- US demand growth strong at low prices – Asia less price elastic, driven by population growth and a growing middle class
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 668
Global Oil Demand Keeps Growing- Not easy to see any peak in oil demand for the next 5 years
75
80
85
90
95
100
105
2002 2004 2006 2008 2010 2012 2014 2016 2018
Millio
n b
/dGlobal Oil Demand
Source: IEA
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 669
World Population By Country(Source: United Nations Population Division 2017)
54% of the world:•China (1.41b)•India (1.34b)•Indonesia (264m)•Pakistan (197m)•Bangladesh (165m)•Japan (127m)•Philippines (105m)•Vietnam (96m)•Thailand (69m)•Myanmar (53m)•South Korea (51m)•Nepal (29m)•Malaysia (32m)•North Korea (24m) •Taiwan (24m)•Sri Lanka (21m)•Cambodia (16m)
USA (324m)4.3% of the world
Brazil (209m)
Nigeria (191m)
Russia (144m)
•Germany (82m)•France (65m)•UK (66m)•Italy (59m)•Spain (46m)•Poland (38m)•Romania (20m)
Kenya (47m)
Egypt (98m)
Ethiopia (105m)
Congo (81m)
South Africa (56m)
Mexico (129m)
Iran (81m)
Turkey (81m)
Colombia (49m)
Morocco (36m)
Sudan (41m)
Tanzania (57m)
Ukraine (44m)
Argentina (44m)
Canada (37m)
Australia (24m)
Algeria (41m)
Saudi (32m)
Peru (32m)
Venezuela (32m)
Iraq (38m)
Yemen (28m)
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6610
Global Oil Demand Keeps Growing- Slightly weaker growth in non-OECD but stronger in OECD
-5
-4
-3
-2
-1
0
1
2
3
4
5
2003 2005 2007 2009 2011 2013 2015 2017
Millio
n b
/d
Year on Year Global Oil Demand
Non-OECD Demand Growth OECD Demand Growth
Net Global Oil Demand GrowthSource: IEA
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6611
Strong Price Response To Demand In OECD Europe- For each $/b Brent price decline OECD Europe demand grows 9 kbd
30
50
70
90
110
130-800
-600
-400
-200
0
200
400
600
2004 2006 2008 2010 2012 2014 2016
US
D/b
Oil
dem
and g
row
th i
n k
bd
OECD Europe oil demand growth vs Brent price
Europe oil demand growth
Brent price real terms (RHS, reverse scale)
y = -8.8171x + 695.74R² = 0.785
-600
-500
-400
-300
-200
-100
0
100
200
300
400
20 40 60 80 100 120 140
Euro
pean oil
dem
and g
row
th
Brent real USD/b
OECD Europe oil demand grows 9 kbd per 1 $/b price decline
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
2006 2008 2010 2012 2014 2016 2018
Millio
n b/d
Year on Year OECD Europe Gasoline Demand
Source: IEA
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
2006 2008 2010 2012 2014 2016 2018
Millio
n b/d
Year on Year OECD Europe Diesel Demand
Source: IEA
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6612
The FID-slump From 2014-16 Will Hit The 2020-23 Market- The lack of FIDs are even more important than the lack of CAPEX, because we will soon run out of large startups
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6613
Net Need Of 12 Mbd By 2021 – Translates To 3 mbd Per Year
35
45
55
65
75
85
95
2006 2008 2010 2012 2014 2016 2018 2020
Mil
lio
n b
/d
Net Oil Need Of 12 Million b/d By 2021?(Assuming 2% net decline rate and oil demand growth of 1.2 mbd p.a)
Global output of crude, condensate and NGLs
Observed decline from 2006-base (4.2%)
Yearly global demand growth of 1.2 mbd
Assumed 2% yearly decline from 2017-base
12
Source: DNB Markets, Rystad Energy
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6614
Net Need For Shale Of 6.1 mbd From 2018-2021- Average growth of 1.5 mbd per year required by 2021 - US shale must grow from 4.3 mbd to 9.4 mbd
102.6
7.0
4.12.0
6.1
97.4
80
82
84
86
88
90
92
94
96
98
100
102
104
Global crude,condensate and
NGLs output in2017 (IEA)
Net decline rateof 2% (half of
last ten years)by 2021
Non-OPECprojects under
development(Rystad Energy)
OPEC projectsunder
development(Rystad Energy)
Required newshale oil to
balance 2018-2021
World liquidsdemand by
2020 (1.2 mbdpr year-2016
was 96.6 mbd)
kb
d2016 vs 2020 Global Oil Balance
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6615
What Kind Of Brent Price Is Required For Economic Barrels?- Our “call on US shale” in 2021 is 11 million b/d. The Brent price must then be higher than the 50-60 range.
Source for break even calculations: PIRA Energy - July 2017
(calculation using 10% cost of capital and is showing Brent equivalent prices, not wellhead prices)
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6616
Legacy Decline Rising Quickly As New Wells Are Completed- Since legacy production now increases again there would be a need to complete a larger number of wells each month to stay flat
0
100
200
300
400
500
600
700
Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17
Thousand b/d
Legacy production decline vs new production
Legacy decline Start ups new wellsSource: EIA US Drilling Productivity Report
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21
Mil
lio
n b
/d
Modelled Crude Oil Production 7 Shale RegionsDecline rate pr well: 70%, 40%, 30% the first three years (87%), thereafter 5% per year
If well completions stopped the 1-year decline would be 1.6 mbd in 2017, but 3 mbd in 2020
Source: DNB Markets, EIA Drilling Productivity Report for Eagle Ford, Bakken, Permian, Utica, Marcellus, Haynesville, Niobrar a
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6617
Logistical Bottlenecks Emerging in The Permian Shale Patch- Growth in Permian production looks to be held back by lack of pipeline capacity until 2H-2019
-20.0
-15.0
-10.0
-5.0
0.0
Jan2017 May2017 Sep2017 Jan2018 May2018
WTI Midland vs MEH (USD/b)
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6618
But Most Of US Crude Production Is Light (API above 40)- US shale is almost all light sweet crude
0
1
2
3
4
5
6
7
8
9
10
US Lower 48 Crude production by gravity- Million b/d
Heavy API<25 Intermediate 25-40 Light API > 40
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Lower 48 Crude production by gravity -Percent
Light API > 40 Intermediate 25-40 Heavy API<25
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jan-2016 Apr-2016 Jul-2016 Oct-2016 Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018
US Lower 48 Crude production by API gravity- Million b/d
Growth<25 Growth 25-40 Growth 40+30.0
30.5
31.0
31.5
32.0
32.5
Jan-2010 Jan-2012 Jan-2014 Jan-2016
US Refinery Intake By Average Gravity (API-number)
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6619
Conclusion: Most US Crude Growth Needs To Be Exported- This will have consequenses for crude differentials and freight costs
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Mar2014 Mar2015 Mar2016 Mar2017 Mar2018
Mil
lio
n b
arr
els
pe
r d
ay
US Crude Oil Exports(4-week mavg)
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan2016 Jul2016 Jan2017 Jul2017 Jan2018
Europe vs USA Arbitrage Brent vs WTI 1st month (USD/b)
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6620
Global Bunker Fuel Specs Are Changing In January 2020- Final decision taken by IMO to implement January 1st 2020
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6622
What Will Happen To The Gasoil vs Fuel Oil Spread?- Gasoil vs fuel oil spreads set to blow out significantly & a repetition of the 2008-diesel squeeze or in 2020 gasoline squeeze????
84
85
86
87
88
89
72.0
72.5
73.0
73.5
74.0
74.5
75.0
75.5
76.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Millio
n b/d
Millio
n b/d
Global Refinery Throughput
Global refinery runs Global oil demandSource: IEA
-45
-35
-25
-15
-5
5
15
25
35
Jan'05 Jun'05 Nov'05 Apr'06 Sep'06 Feb'07 Jul'07 Dec'07 May'08 Oct'08 Mar'09 Aug'09
$/b
arr
el
Gasoil crack & Resid Fuel crackBecomes a mirror when all upgrading units are fully utilized
Historic Gasoil crack Historic Resid Fuel Rtdml crack
50
60
70
80
90
100
110
120
130
140
5
10
15
20
25
30
35
40
Jan'06 Apr'06 Jul'06 Oct'06 Jan'07 Apr'07 Jul'07 Oct'07 Jan'08 Apr'08 Jul'08 Oct'08
$/b
arr
el B
rent price
$/b
arr
el cra
ck s
pre
ad
Gasoil Cracks Led Crude In 20082008 price spike led by the diesel squeeze
Historic Gasoil crack (LHS) Historic Brent price (RHS)
0
100
200
300
400
500
600
700
800
900
Jan'05 Jun'06 Nov'07 Apr'09 Sep'10 Feb'12 Jul'13 Dec'14 May'16 Oct'17 Mar'19 Aug'20 Jan'22
$/m
t
Gasoil vs Sing380 forecast(HSFO to coal parity and Gasoil gearing effect sending Brent to 100 $/b)
Historic DNB Forecast Forward
Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 6623
Maybe Enough Gasoil/LSFO But What About HSFO Destruction?- Difficult for refiners to achieve enough fuel destruction by 2020, and will they be able to produce enough gasoil?
- A yield shift from Mogas/Naphtha towards Middle Distillates just shifts the short position to Mogas/Naphtha
2020 vs 2017 - Cumulative changes Mogas/Naphtha Middle Distillates LSFO HSFO Others Total
Increased global refinery runs 3.8 mbd (1.3 mbd pr year) 1,026 1,368 722 570 114 3,800
Straight run yield 27% 36% 19% 15% 3% 100%
Additional Fluid Catalytic Cracking (FCC) 300 100 -450 100 50
Additional Hydro Cracking 100 400 50 -600 50 0
Additional Coking 100 300 -500 50 -50
Cutter stock saved 100 -100
Additional Vacuume Gasoil Desulfurization (VGO HDS) 300 -300
Additional Resid Fuel Oil Desulfurization (Resid HDS) 500 -500
Total supply addition 1,526 2,268 1,122 -1,430 314 3,801
IMO 2020 change (assuming 18% scrubbing/cheating) 2,400 1,100 -3,000
Demand change outside the shipping sector 1,500 1,200
Deficit/Surplus 26 -1,332 1,570
What will the bunker spec change require?
A) Increased refinery throughput of middle distillate rich crude oils - Increase in global runs Ytd 2017 is 0.8 mbd
B) A global refinery yield shift towards gasoil/diesel, probably at the expense of gasoline output (1% change in yield is worth 0.8 mbd)
C) All the new capacity estimated above must come online
There would still not be enough capacity to "destroy" enough High Sulfur Resid Fuel
High Sulfur Resid Fuel must find it's way onshore into power generation/Industrial production in Africa, Middle East and Asia
DNB Markets Commodities
• DNB Markets Commodities serves corporate clients of DNB Bank ASA
globally with advisory, market analysis, hedging, and origination within
commodities.
• Cost-efficient and flexible trading in risk management instruments with tailor-
made collateral solutions. Transacting derivatives on credit lines thereby
reducing capital constraints.
• Experienced dealers, traders and analysts with industry background offering
24/7 markets coverage with wide market access.
• Daily market reports and in-depth commodity market analysis.
• Global reach with dedicated Commodity teams in Oslo, Stockholm, London,
New York, Singapore and Shanghai.
DNB Markets Commodities in brief Oil & Gas - Research and reports
Sector commodity offering Global presence
Oslo, Sales & Trading London, Sales New York, Sales Oslo, Research
Nils Fredrik Hvatum +47 24 16 91 59 Nils Wierli Nilsen +47 24 16 91 61 Ane Tobiassen +44(0) 20 7621 6082 Fredrik s. Andersen +1 212 681 3888 Torbjørn Kjus +47 24 16 91 66
Kenneth Tveter +47 24 16 91 69 André Rørheim +47 24 16 91 64 Singapore, Sales Salvatore Vaccaro +1 212 681 3984 Karl Magnus Maribu +47 24 16 91 57
Sebastian Malmstein +47 24 16 91 53 Erik Warren +47 24 16 91 46 Seng Leong Ong +65 622 480 22
