Oil Markets After the Hurricanes: Reversion to the Mean or Return to Recent Trend? John Cook, Director EIA Petroleum Division December 14, 2005 Macroeconomic

Oil Markets After the Hurricanes:Oil Markets After the Hurricanes:

Reversion to the Mean or Reversion to the Mean or

Return to Recent Trend?Return to Recent Trend?

John Cook, DirectorJohn Cook, Director

EIA Petroleum DivisionEIA Petroleum Division

December 14, 2005December 14, 2005

Macroeconomic AdvisersMacroeconomic AdvisersQuarterly MeetingQuarterly Meeting

December 2005December 2005

Map courtesy of iMapData Inc.

Oil Markets After the Hurricanes::

Reversion to the Mean or Return to Recent Trend?

10

20

30

40

50

60

70J

an

-98

Ju

l-9

8

Ja

n-9

9

Ju

l-9

9

Ja

n-0

0

Ju

l-0

0

Ja

n-0

1

Ju

l-0

1

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l-0

2

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6

Do

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Forecast

WTI Crude Oil Price: 1998-2006

Sources: History: EIA; Projections: Short-Term Energy Outlook, December 2005.

Weighing the MarketBullsBulls

•Continued strong economic and oil demand growth worldwide

•Little spare capacity available

•Relatively low forward cover

•Lingering hurricane supply losses

•Other possible supply disruptions

•Geopolitical concerns

•WeatherBearsBears

•Slowing economic and oil demand growth

•Demand destruction due to high prices

•Inventory recovery

•More capacity growth

•Warm winter potential

•Easing supply risks

0

10

20

30

40

50

60

70

80

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Months

Do

lla

rs p

er

Ba

rre

lWTI Futures Curves: The Deferred Price Has

Also Increased in Recent Years

Source: New York Mercantile Exchange.

12/2/2002

12/1/2003

12/1/2004

12/1/2005

8/30/2005

Katrina

World Oil Demand Growth Is Expected To Pick Up Again in 2006

World oil demand growth slowed in 2005 but will increase in 2006

Source: History: EIA; Projections: Short-Term Energy Outlook, December 2005.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1991-1999Avg.

2000 2001 2002 2003 2004 2005 2006

Mill

ion

Ba

rre

ls p

er

Da

y

China

US

Estimates of World Demand Growth Have Been Continually Too Pessimistic in Recent Years

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2003 2004 2005 2006

Mil

lio

n B

arre

ls p

er D

ay

Sources: December editions of IEA’s Oil Market Report.

Estimate 1 Year Ahead

Estimate End of Current Year

?

Estimates of Non-OPEC Supply Growth Have Been Continually Too Optimistic in Recent Years

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2003 2004 2005 2006

Mil

lio

n B

arre

ls p

er D

ay

Sources: December editions of IEA’s Oil Market Report.

Estimate 1 Year Ahead

Estimate End of Current Year

?

Recent Non-OPEC Supply Growth Is Mostly from Former Soviet Union (FSU) Countries

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.01Q

953Q

951Q

963Q

961Q

973Q

971Q

983Q

981Q

993Q

991Q

003Q

001Q

013Q

011Q

023Q

021Q

033Q

031Q

043Q

041Q

053Q

051Q

063Q

06

Mil

lio

n B

arre

ls p

er D

ay

Non-OPEC, Non-FSU FSU

Year-on-Year Growth in Total Liquids Oil Production

Source: EIA international petroleum statistics and Short-Term Energy Outlook, December 2005.

0

400

800

1,200

1,600

2,000

8/22 9/5 9/19 10/3 10/17 10/31 11/14 11/28

Hurricanes Katrina and Rita Shut In Significant Gulf Crude Oil Production

Wilma

Ivan

‘000 bbl/d

RitaKatrina

Source: Short Term Energy Outlook, December 2005.

504392

331 297

706

10911114

131 124143157

729

443

208

Se

p

Oc

t

No

v

De

c

Ja

n

Fe

b

Ma

r

1.51.0

0.7

2.4

5.4

6.0

3.8

0.3 0.10.60.6

1.81.2

2.7

Sep Oct

No

v

Dec

Jan

Feb Mar

0

2

4

6

8

10

8/22 9/5 9/19 10/3 10/17 10/31 11/14 11/28

Hurricanes Katrina and Rita Shut In Significant Gulf Natural Gas Production

Shut In CapacityIvan

Bcf/d


Will OPEC Keep Markets Adequately Supplied?

0

5 0

1 9 9

9 Q 1

2 0 0

1 Q 4

OPEC 10 (OPEC excluding Iraq) Iraq0

5 0

1 9 9 9 Q 1 2 0 0 1 Q 3

OPEC 10 (OPEC excluding Iraq) Iraq

0

5 0

1 9 9

9 Q 1

2 0 0

1 Q 4

OPEC 10 (OPEC excluding Iraq) Iraq

15

17

19

21

23

25

27

29

31

33

'00Q1

'00Q3

'01Q1

'01Q3

'02'Q1

'02Q3

'03Q1

'03Q3

'04Q1

'04Q3

'05Q1

'05Q3

'06Q1

'06Q3

Mill

ion

Ba

rre

ls p

er

Da

y

OPEC Production OPEC Capacity

History Projections

Sources: History: EIA; Projections: Short-Term Energy Outlook, December 2005.

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mil

lio

n B

arr

els

NOTE: Colored Band is Normal Stock Range. Dashed line is 1998-2002 average.

OECD Commercial Total Oil Inventories

2005

2004

OECD Total Commercial Oil Stocks Near Average Levels This Year

Source: International Energy Agency database, November 2005.

46

48

50

52

54

56

58

60

62

64

66


Da

ys

of

Fo

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rd C

on

su

mp

tio

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OECD Commercial Total Oil Inventories

2005

2004

But OECD Total Commercial Oil Stocks Low in Terms of Days Supply


46

48

50

52

54

56

58

60

62

64

66


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

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OECD Commercial Atlantic Basin Oil Inventories

2005

2004

Regionally, OECD Atlantic Basin Commercial Oil Stocks Are Low in Terms of Days Supply


35

40

45

50

55

60

65


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

n


OECD Commercial Pacific Oil Inventories

20052004

And OECD Pacific Commercial Oil StocksAre Very Low in Terms of Days Supply


1,100

1,200

1,300

1,400

1,500

1,600

1,700


Mil

lio

n B

arr

els


OECD Commercial Total Petroleum Product Inventories

20052004

OECD Total Commercial Petroleum Product Stocks Are Low in Absolute Levels


25

27

29

31

33

35


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

n


OECD Commercial Total Petroleum Product Inventories

2005

2004

OECD Total Commercial Petroleum Product Stocks Are Particularly Low in Terms of Days Supply


0

10

20

30

40

50

60

70J

an

-90

Ja

n-9

1

Ja

n-9

2

Ja

n-9

3

Ja

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Ja

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5

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6

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7

Ja

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8

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9

Ja

n-0

0

Ja

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1

Ja

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2

Ja

n-0

3

Ja

n-0

4

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5

Ja

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6

$2

00

5 D

oll

ars

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Da

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Su

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ly

0

2

4

6

8

10

12

14

Mil

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els

pe

r D

ay

WTI Spot ($2005)OECD Days SupplyWorld Excess Production Capacity (right axis)

As Spare Capacity Increases in 2006, OECD Days Supply Will Continue to Fall

Sources: WTI: Reuters; OECD Days Supply: International Energy Agency; World Excess Production Capacity: U.S. Energy Information Administration estimates.

U.S. Refining Capacity Surplus Disappearing, Creating Short-Term Challenge

02468

101214161820

Jan

-81

Jan

-83

Jan

-85

Jan

-87

Jan

-89

Jan

-91

Jan

-93

Jan

-95

Jan

-97

Jan

-99

Jan

-01

Jan

-03

Jan

-05

Mil

lio

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arre

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ay

U.S. Refining Capacity & Inputs

Gross Inputs

Operable Capacity

Source: U.S. Energy Information Administration.

Capacity Surplus Varies Seasonally

0

2

4

6

8

10

12

14

16

18Ja

n-0

0

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Mil

lio

n B

arre

ls P

er D

ay

U.S. Refining Capacity & Inputs

Gross Inputs

Operable Capacity

Seasonal Squeezes


Seasonal Crude Use Down In Fall Worldwide

-2000

-1500

-1000

-500

0

500

1000

1500Ja

n

Mar

May Ju

l

Sep

No

v

Th

ou

san

d B

arre

ls p

er D

ay

OECD NorthAmerica

OECD Pacific

OECDEurope

Typical Crude Input Deviations from Annual Average

Source: BP World Statistics 2005.

0

1,000

2,000

3,000

4,000

5,000

6,000

8/22 9/11 10/1 10/21 11/10 11/30

Hurricanes Katrina and Rita Initially ShutDown Most Gulf Refinery Capacity

120 60 0

1,9961,701

804462

Se

p

Oc

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No

v

De

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Ja

n

Fe

b

Ma

r

Shut In Capacity

‘000 bbl/d


Hurricane Outages Lowered Available Short-Term U.S. Refinery Capacity

02468

1012141618

8/5/

05

8/12

/05

8/19

/05

8/26

/05

9/2/

05

9/9/

05

9/16

/05

9/23

/05

9/30

/05

10/7

/05

10/1

4/05

10/2

1/05

10/2

8/05

11/4

/05

11/1

1/05

11/1

8/05

11/2

5/05

Mil

lio

n B

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ls p

er D

ay

Crude Inputs Refinery Capacity Available Capacity


Initially, Other Regions Help Balance U.S Losses

12.012.513.013.514.014.515.015.516.016.517.0

Jan

Feb Mar

Ap

r

May

Jun

Jul

Au

g

Sep Oct

No

v

Dec

Mil

lio

n B

arre

ls P

er D

ay

2003

2004

2005

U.S. Crude Input

Crude Input Changes 2004-2005Aug Sep Oct Nov Dec

US -0.5 -1.0 -1.4 -0.8 -0.3OECD Europe -0.1 0.4 ? ? ?OECD Asia -0.2 0.6 ? ? ?

Source: International Energy Agency database, November 2005 and EIA’s Short Term Energy Outlook, December 2005.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0


Mil

lio

n B

arr

els

pe

r D

ay

U. S. Gross Product Imports

Product Imports Were Key Supply Source During September Through November

2004

2005


Product Imports Were Key Supply Source During September Through November

U.S. Four-Week Average Finished Gasoline Demand Begins to Show More Typical Growth

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1/9

1/30

2/20

3/12 4/2

4/23

5/14 6/4

6/25

7/16 8/6

8/27

9/17

10/8

10/2

9

11/1

9

12/1

0

12/3

1

2004 2005

Year-on-Year Four-Week Average Growth Using Weekly Data

Source: EIA Weekly Petroleum Status Report.

U.S. Four-Week Average Diesel Demand Has Returned to Pre-Hurricane Growth

-8%-6%-4%-2%0%2%4%6%8%

10%12%14%16%

1/9

1/30

2/20

3/12 4/2

4/23

5/14 6/4

6/25

7/16 8/6

8/27

9/17

10/8

10/2

9

11/1

9

12/1

0

12/3

1

2004 2005

Year-on-Year Four-Week Average Growth Using Weekly Data

Source: EIA Weekly Petroleum Status Report.

Chinese Oil Demand Begins to Show Growth Again in Second Half of 2005

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1Q 2Q 3Q 4Q

Mill

ion

Ba

rre

ls p

er

Da

y

2003 2004 2005


Much of China’s Oil Demand Growth in Last 2 Years Has Come From Gasoline and Diesel

-100

0

100

200

300

400

500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Th

ou

san

d B

arre

ls P

er D

ay Gasoline Middle Distillates

Source: BP World Statistics 2005 and industry estimates.

22

24

26

28

30

32

34

36

38


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

n


OECD Commercial Atlantic Basin Gasoline Inventories

20052004

OECD Atlantic Basin Commercial Gasoline Stocks Well Below Average in Terms of Days Supply


12

14

16

18

20

22

24

26

28


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

n


OECD Commercial Atlantic Basin Middle Distillate Inventories

2005

2004

OECD Atlantic Basin Commercial Distillate StocksAlso Low in Terms of Days Supply


8

10

12

14

16

18

20

22


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

n


OECD Commercial Pacific Middle Distillate Inventories

20042005

OECD Pacific Commercial Distillate StocksLow in Terms of Days Supply


15

20

25

30

35

40


Da

ys

of

Fo

rwa

rd C

on

su

mp

tio

n


U.S. Diesel Inventories

2005

2004

U.S. Diesel Inventories Have Been Low in Terms of Days Supply for the Last 2 Years


Conclusions

• U.S. oil demand, while temporarily affected by the hurricanes, is returning to pre-hurricane growth rates.

• World oil demand growth is expected to be stronger in 2006 than 2005.

• Non-OPEC oil supply is expected to grow by less than world demand in both 2005 and 2006.

• This will require either:– More OPEC production, limiting any large increase

in spare production capacity, or– Inventories will be drawn down, keeping them low

on a days supply basis.

• Thus, oil markets are expected to remain tight in 2006.

Documents

Oil Markets After the Hurricanes: Reversion to the Mean or Return to Recent Trend? John Cook, Director EIA Petroleum Division December 14, 2005 Macroeconomic