OIL – Base Case Price Outlook
and Key Uncertainties
Graham Loveland
Associate Principal Consultant
Outline of Presentation
Crude Oil
ƒ The Base Case and Key Uncertainties
• Demand, non-OPEC, OPEC production and capacity
• The price outlook
Refined Products
ƒ The Base Case and Key Uncertainties
• Product balances, refining capacity and complexity,
crude oil quality
• The product price spread outlook
Copyright © 2006 Global Insight, Inc.
2
The Central Dynamic: Managing OPEC Spare Capacity
60
9
Brent $/barrel
R
50
7
40
6
5
30
4
20
3
2
Crude Oil Price $/barrel
Spare Capacity % of Demand
8
OPEC Spare Capacity
L
10
1
0
0
1990
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1993
1996
1999
2002
2005
3
Demand: Asia & the Transport Sector Dominate
Global Oil Demand by Region
Oil Demand Growth (2005-25)
120
80
10
Million Barrels per Day
Million Barrels a Day
100
12
FSU
Africa
Middle East
Asia/Pacific
S. Am erica
E. Europe
W. Europe
N. Am erica
60
40
8
Others
Pow er Generation
Transportation
Petrochem ical Feedstock
Industrial Sector
Dom estic Sector
6
4
2
0
20
-2
0
1990
1995
2000
2005
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2010
2015
2020
2025
North
West Eastern South
Asia/ Middle
Am erica Europe Europe Am erica Pacific
East
Africa
FSU
4
Global Oil Supply Outlook: Non-OPEC
70
Million Barrels per Day
60
50
Processing Gain
GTL & Nonconventional
Biofuels
Russia
Non-OPEC Ex Russia
40
30
A plateau for
Crude/NGLs but
total supply rises
20
10
0
1990
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1995
2000
2005
2010
2015
2020
2025
5
OPEC Production & Spare Capacity
•
Total OPEC output rises steadily
•
Members add to capacity
•
Spare capacity rises to 3% of demand by
2010
ƒ High enough to restore a cushion against
supply shocks and allow prices to soften
ƒ Low enough to maintain production discipline
and prevent a price collapse
•
Maintained at this level to support prices
ƒ Future price support based less on quotas and
cuts and more on managing spare capacity
ƒ Challenging!
•
Implies deferral of some projects
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6
The Changing Shape of the Futures Curve
80
November Quotes ($/Barrel)
70
2006
60
2005
50
40
2004
30
2003
2002
2001
20
10
0
4
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8
12
16
20
24
28
32
36
40
44
48
7
Crude Oil Price Outlook
70
FORECAST
Rising
Rising spare
spare capacity,
capacity, reduction
reduction of
of contango,
contango,
OPEC
OPEC management
management of
of price,
price, demand
demand and
and supply
supply
respond
respond to
to price,
price, lower
lower futures
futures market
market support.
support.
BFO Real $2005
60
BFO Nominal
2005 USD/Barrel
50
40
Technology
Technology
developments
developments lead
lead to
to
falling
falling marginal
marginal costs.
costs.
30
OPEC
OPEC manage
manage capacity
capacity to
to
support
$55/barrel
(nominal)
support $55/barrel (nominal)
20
10
0
1990
1995
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2000
2005
2010
2015
2020
2025
8
Crude Oil: Key Uncertainties
Demand
ƒ Elasticity, policy responses, climate change
Non-OPEC
ƒ Reserves, access, decline rates, costs, IOC
priorities, NOCs, non-conventional sources
OPEC
ƒ Spending priorities & investment, discipline,
price aspirations, responsiveness
Role of futures market
ƒ Response to price fall, view of the LT outlook
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9
Refined Products: European Demand & Supply Trends
Gasoil and other middle distillates
ƒ
ƒ
ƒ
ƒ
Robust growth, especially diesel and kerosene
Tightening product specifications globally
Rising net imports
Needs refinery investment
Fuel oil
ƒ
ƒ
ƒ
ƒ
ƒ
Declining consumption, globally flat
Tightening specifications in export markets
Future for use of fuel oil as bunker fuel?
Rising net exports but shrinking options
Needs a technical fix
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10
New Refinery Investments will be Required
80
20
Refinery Capacity
18
Demand
Spare capacity
16
70
14
Million b/d
60
12
50
10
40
8
30
6
20
4
10
0
1965
Million b/d
90
2
1970
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1975
1980
1985
1990
1995
2000
0
2005
Source: BP Statistical Review 2006
11
Announced Refinery Capacity Expansions to 2010
Distillation
14%
Cat cracking
3%
Hydrocracking
19%
Coking
22%
0%
5%
10%
15%
20%
25%
Capacity Expansion (Relative to 1 January 2006)
Copyright © 2006 Global Insight, Inc.
Source: OGJ
12
Product Price Projections
FORECAST
600
Gas oil CIF
BFO FOB
500
LSFO CIF
2005 USD/Tonne
HSFO CIF
400
300
200
100
0
1990
1995
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2000
2005
2010
2015
2020
2025
13
Refined Products: Key Uncertainties
Demand issues
ƒ Elasticity, policy
developments
Refining issues
ƒ Capacity/complexity,
Investment cycles and
margins
Copyright © 2006 Global Insight, Inc.
Fuel oil
ƒ Russian exports, Asian
imports, U.S. imports,
Prices of competing
fuels, Marine bunkers
Gasoil
ƒ Asian export refineries,
aviation fuel demand and
taxation
14
Thank you!
Graham Loveland
Associate Principal Consultant
[email protected]