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中国石油经济技术研究院 | Page 1
Features and Trends of International Oil Market under New Normal
Chen Rui
CNPC Economics & Technology Research Institute
November 3, 2015
中国石油经济技术研究院 | Page 2
The global oil and gas industry has experienced a phase of prosperity since 2000
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USD
/Barrel
Historical Oil PricesNominal Price Translated in price in 2013 in USD
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中国石油经济技术研究院 | Page 3
I. Ten Features of International Oil Market
under New Normal
II. Trends of International Oil Prices under New
Normal
Table of Contents
中国石油经济技术研究院 | Page 4
(1) “Peak Oil” is a false proposition
Source: BP Statistical Review of World Energy 2015, %
The “Peak Oil” theory was very popular at the beginning of the New Century
Technological revolution has changed this understanding.
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中国石油经济技术研究院 | Page 5Global Oil Supply and Demand Distribution
North America
Europe
Asia Pacific
23 24
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2013 2020 2030
10 13 14
2013 2020 2030
14 16 18
2013 2020 2030
8 8
7
2013 2020 203011 11
10
2013 2020 2030
Oil production (in 100 million tons)
Oil consumption (in 100 million tons)
(2) A pattern of “two supply belts and three consumption centers” has formed, with production shifting westwards and consumption eastwards
Driven by US energy independence, the production center is shifting to the Western hemisphere, eventually forming the eastern
and western supply belts
The global oil and gas consumption is shifting to the Eastern hemisphere, resulting in the establishment of three major oil and
gas consumption centers: North America, Asia Pacific, and Europe
中国石油经济技术研究院 | Page 6
(3) Easing global oil supply and demand has become “New Normal”
In 2020, oil demand will reach 99 million barrels per day (bpd); global oil supply capacity will reach 1.05 billion
bpd, 6 million bpd higher than the demand
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中国石油经济技术研究院 | Page 7
(4) The balance of power in supply between OPEC and non- OPEC countries has changed
The world oil production and growth, in 10,000 bpd
The US oil production and growth, in 10,000 bpd
Source: BP Statistical Review of World Energy 2015
Saudi Arabia is a traditional oil producer.
The US is becoming a new oil producer.
中国石油经济技术研究院 | Page 8
(5) OPEC has shifted its market strategy from protecting oil prices tosecuring the market share
Composition of world oil production and share of OPEC
Source: BP Statistical Review of World Energy 2015 Source: U.S. Energy Information Administration (EIA)
Crude oil production in OPEC countries
Since the new century, with the exception of 2002, OPEC oil production has been accounting for over 40%.
In 2009, the share of US oil production in the world’s total oil production began to pick up, increasing to 12.6% in
2014.
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中国石油经济技术研究院 | Page 9
(6) The balance of power in supply and demand between OECD and non-OECD countries has changed
Oil demand from OECD and non-OECD countries
Growth in oil demand in OECD and non-OECD countries
Source: BP Statistical Review of World Energy 2015
The non-OECD share is greater than the OECD share.
The growth in demand is contributed mostly by non-OECD countries.
中国石油经济技术研究院 | Page 10
Source: U.S. Energy Information Administration (EIA)
(7)The world oil quality structure has changed from heavy oil to light oil
Before 2011, it was dominated by heavy and high-sulfur oil.
After 2011, it has been dominated by light and low-sulfur oil.
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中国石油经济技术研究院 | Page 11
Increase in the proportion of trade in refined oil(8) The trade center is shifting to the Eastern Hemisphere
Proportion of global oil import trade amount in 2014
Source: BP Statistical Review of World Energy 2015
North America 19.4%
Latin America
3.9%
Europe
22.2%
Former Soviet
Union 0.2%
Middle East 2.0%
Africa 3.0%
Asia Pacific 49.2%
In 2014, the crude oil trade volume was 37.68 million
bpd, accounting for 66%, 7 percentage points down from
the level of 2007 (73%).
中国石油经济技术研究院 | Page 12
(9) Many sources of supply target at China, highlighting China’s position
Share of China’s crude oil trade in the world’s total in 2007 and 2014 Share of China’s oil demand in the world’s total in 2007 and
2014
In 2014, China’s share of oil trade in the world’s total trade
increased to 16.5%, while China’s share of oil demand in the
world’s total increased to 12%.
Latin America
Africa
ChineseMiddle East
Soviet Union
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中国石油经济技术研究院 | Page 13
(10) An Asian benchmark has been established and the international crude oil pricing system reshaped
Shanghai Futures Exchange (SHFE)
New York Mercantile Exchange (NYMEX)
Singapore Exchange (SGX)
Multi Commodity Exchange (MCX)
Dubai Mercantile Exchange (DME)
Intercontinental
Exchange (ICE)
Tokyo Commodity Exchange (TOCOM)
It helps eliminate the "Asian premium.“
It helps improve the global pricing system.
中国石油经济技术研究院 | Page 14
I. Ten Features of International Oil Market
under New Normal
II. Trends of International Oil Prices under New
Normal
Table of Contents
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中国石油经济技术研究院 | Page 15
(1) Commodity feature ——Continued easing of oil market fundamentals
Continued easing of the world oil supply and demand
Moderate growth in oil demand, lack of new growth points
World oil demand growth in 2020 - 2006
中国石油经济技术研究院 | Page 16
(1) Commodity feature——Re-balance of supply and demand in a dynamic context
High oil prices
Increasing supply
Declining demand
Easing supply
and demand
Low oil prices
Declining supply
Increasing demand
Tightening supply
and demand
Low oil prices lead to capacity clearing.
Low oil prices stimulate oil demand.
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中国石油经济技术研究院 | Page 17
(2) Financial feature ——A period of depreciation of the dollar
• 1971-1980: a decade seeing the
depreciation of the dollar;
• 1980-1986: six years seeing the
appreciation of the dollar;
• 1986-1996: a decade seeing the
depreciation of the dollar;
• 1996-2002: six years seeing the
appreciation of the dollar;
• 2002-2014: a dozen of years seeing the
depreciation of the dollar;
Periodic trend of the dollar in a medium and long term
中国石油经济技术研究院 | Page 18
2008: Speculators were trend settlers 2014: Speculators were trend followers
(2) Financial feature ——Strengthened financial regulation, weakened market speculation
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中国石油经济技术研究院 | Page 19
Market share
To release strategic oil reserves
To boost production together with Saudi Arabia and other countries
To increase unconventional domestic oil and gas production
To timely relax restrictions on crude oil export
To relax restrictions on Iranian export
One action for many purposes
(3) Political features——The US tightens its control over oil prices by political and market means
中国石油经济技术研究院 | Page 20
(4) Two “traditional support” factors ——The marginal cost of production determines the
long-term bottom line of oil prices
Shale oil production cost distribution in the US
Onshore oil
Onshore Oil
Russia
Onshore OilOther regions
DeepwaterOil
Heavy oil Ultra-deepwater oil
Oil sands
shale oil
North Americ
a
Oil production costs of different resources in different regions
OilContinental shelf
OilArctic
Declining marginal cost
Dynamic adjustments of the bottom line of oil prices
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中国石油经济技术研究院 | Page 21
(4) Two “traditional support” factors——The fiscal break-even price of oil in major oil producers
Source: Deutsche Bank; Reuters IMF Regional Economic Outlook: Middle East and North Africa (MENA)
Relationship between oil price and balance of payment Forecast of break-even price in MENA oil producers in 2015
Current account break-even price , 2015
Bahrain
Algeria
Saudi Arabia
Iran
Libya
Yemen
Iraq
Oman
Qatar
Kuwait
UAEFiscal break-even price , 2015
The oil price is below the fiscal break-even price of oil
Not sustainable
中国石油经济技术研究院 | Page 22
(5) Low international oil prices, gradually increasing
Mid and long-term forecast of international oil price trend (Brent)
It takes time to restore the oil price.
It has long been below 100 USD/barrel
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中国石油经济技术研究院 | Page 23
Conclusions and ImplicationsThe world oil market is in the process of rebalancing, and it takes time to restore the international oil price
Trend 2
Trend 3
Trend 1
With insufficient new growth points, the global oil demand is plagued by weak growth
The exacerbated confrontation between OPEC and non-OPEC countries results in an increasingly fiercer competition to gain the market share
Trend 4A pattern of “two supply belts and three consumption centers” has taken shape, in which the production center is shifting to the Western hemisphere while the Eastern hemisphere is playing an increasingly important role in oil consumption
Trend 5China is playing an increasingly important role in oil trade, and the proportion of refined oil trade is on the increase
The introduction of crude futures in Shanghai will accelerate the establishment of the benchmark crude oil priceTrend 6
中国石油经济技术研究院 | Page 24
Thanks!
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Contact:[email protected]