oil & gas journal midyear forecast (7.14.2017)
TRANSCRIPT
Oil & Gas Journal Webcast: Midyear Forecast 2017
Bob Tippee, Editor
Conglin Xu, Senior Editor-Economics
July 14, 2017
OGJ presenters
Bob Tippee
Editor
Conglin Xu
Senior Editor-Economics
OGJ special reports
• Forecast & Review (Jan. 2)• Conglin Xu and Laura Bell
• Midyear Forecast (Jul. 3) • Conglin Xu and Laura Bell
Market balance……Remains elusive, so…
…stocks still high
The global oil balance
Current view of F&R 2017 view of
2017F 2016E 2017F
Global demand 97.8 96.6 97.6
Non-OPEC supply 58.3 57.6 57.0
OPEC NGL 6.8 6.7 7.0
Zero stock-change call on OPEC crude
32.7 32.3 33.6
OPEC crude 31.9 32.6 32.7
Stock change & other balance -0.8 +0.4* -0.9
Source: International Energy Agency Oil Market Report, June 2017; OGJ
estimates for 2017 OPEC crude and stock change
*Rounding.
Global demand: balanced growth
The new supply world
OPEC production…
…now has competition
OGJ: US product demand (MMbd)
Motor gasoline 9.300 -0.3% 9.400
Jet fuel 1.645 +2.4% 1.600
Distillate 4.010 +3.4% 3.940
Residual 0.310 -13.2% 0.300
LPG, ethane 2.600 +4.3% 2.600
Other 1.980 +0.4% 1.889
Total before exports
19.845 +1.1% 19.729
OGJ projections for 2017
Source: Chart from EIA Short Term Energy
Outlook for June 2017
Midyear F&R
OGJ: US oil supply 2017 (MMbd)
Crude/condensate 9.30 +4.8% 9.30
NGL & LRG 3.70 +6.4% 3.80
Renewables 1.16 +1.0% 1.13
Proc. gains 1.10 -0.7% 1.08
Total ex imports 15.26 +4.4% 15.31
Tot. imports 10.43 +3.6%
Tot. exports 6.02 +16.0%
Net imports 4.41* -9.4%Refining capacity utilization high:
90.0% projected for 2017 vs.
89.8% estimated for 2016
OGJ projections for 2017
*Projected net imports = 22.2% of
projected demand
Source: Chart from EIA Short Term Energy Outlook for June 2017
Midyear F&R
US crude production, drilling recover
US drilling snapshot
Baker Hughes rig count for week ending July 7, 2017:
US total – 952, up 12 vs. prior week, up 512 vs. prior year.
US refiners active
US is net crude importer, product exporter
OGJ: Gas overview 2017 (tcf)
Production 29.001 +2.5% 29.273
Imports 2.956 -1.5% 2.778
Supp. gas,losses, etc.
-1.824 +2.5% -1.840
From (to) storage
(0.171) -147.8% (0.050)
Total supply 29.963 +0.3% 30.161
Exports 3.172 +37% 2.670
Totalconsumption
26.791 -2.6% 27.491
OGJ projections for 2017
Source: Charts from EIA Short Term Energy Outlook for June 2017
Midyear F&R
Geopolitical context: production cooperation
Saudi Arabia IranIraqSyriaYemenQatar
Russia
LibyaUAE
TurkeyEgypt
Saudi Arabia, UAE, other Sunni GCC
Economic restructuringSaudi successionAramco IPO in 2018?ADNOC new partnerships
June market highlights: IEA OMR, July 13
• OPEC compliance with production accord slipped to 78% from 95% in May (average 2017 OPEC compliance: 92%)
• Non-OPEC compliance with production accord rose to 82% in June
• OPEC members 100% or more in compliance: Angola, Equatorial Guinea, Saudi Arabia
• Combined production from exempt Nigeria and Libya up 500,000 b/d since March, by 660,000 b/d since year ago (vs. 1.2 million b/d cut agreed by other OPEC)
Oil price analysisShort-term Oil Macro Supply security concerns
Oil price analysis: Future curves, VAR forecast, historical decomposition,
and others
Daily WTI, Brent
-5
0
5
10
15
20
0
20
40
60
80
100
120
140
1/2
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3/2
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5/2
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7/2
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9/2
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11
/2/1
4
1/2
/15
3/2
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5/2
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7/2
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9/2
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11
/2/1
5
1/2
/16
3/2
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5/2
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7/2
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9/2
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11
/2/1
6
1/2
/17
3/2
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5/2
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7/2
/17
Crude Oil Prices
Brent-WTI
WTI
Brent
$/bbl $/bbl
-3
-2
-1
0
1
2
3
4
5
0
10
20
30
40
50
60
Crude Oil PricesBrent-WTI
WTI
Brent
$/bbl $/bbl
NYMEX futures price
0
20
40
60
80
100
120
140
Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018
West Texas Intermediate (WTI) crude oil pricedollars per barrel
Historical spot price
STEO price forecast
NYMEX futures price
95% NYMEX futures upper confidence interval
95% NYMEX futures lower confidence interval
Source: Short-Term Energy Outlook, July 2017.
Note: Confidence interval derived from options market information for the 5 trading days ending Jul 6,
2017. Intervals not calculated for months with sparse trading in near-the-money options contracts.
The futures market structure
VAR (vector autoregression model) oil price forecast:Directional accuracy has been consistently proved
(From January OGJ F&R report/webcast; Published in Jan OGJ Print issue)
Updated VAR forecast: a basic trend forecast till the end of 2017
Forecasts Actual
$/b
bl
J F M A M J J A S O N D J F M A M J J A S O N D
2016 2017
25
30
35
40
45
50
55
OGJ analysis
Oil price historical decomposition Methodolody
eyByByBy tptpttt
......
2211
e
e
e
y
y
y
bbbbbbbbb
y
y
y
t
t
t
t
t
t
t
t
t
3
2
1
1,3
1,2
1,1
333231
232221
131211
3
2
1
Sign restrictions + Boundaries on impact elasticities of oil supply and oil demand
Monte Carlo Integration+ Rejection method
Source: OGJ analysis,
Reference: Kilian(2010, University of Michigan), IMF papers
Contribution of flow supply shocks to Oil price
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
-30.00
-10.00
10.00
Contribution of flow demand shocks to Oil price
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
-40.00
0.00
40.00
Contribution of speculative demand shocks to Oil price
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
-40.00
-20.00
0.00
20.00
40.00
Historical decomposition of oil prices
Need more data…..
Source: OGJ analysis
Oil price volatility
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
201301 201311 201409 201507 201605 201703
Brent daily returns
Source: OGJ Analysis
The Tale of Tourist (RBC): Increased participation of non-commodity traders• NYMEX and ICE WTI Short
Positioning• WTI Contacts Traded per Month
Short-term oil macro
The world economy is strengthening
Sauce: Global Economic Projects, June 2017, World Bank
Global growth Global Trade Corporate bond spreads
China
Contribution to GDP growth
US Europe unemployment
Japan exports
Sauce: Global Economic Projects, June 2017, World Bank
Demand(million b/d)
2016 2017 2018
IEA 96.6 98 99.4
EIA 96.92 98.39 100.00
OPEC 95.12 96.38 97.6
•
•
Global oil demand forecasts
Demand growth(million b/d)
2016/2015 2017/2016 2018/2017
IEA 1.6( + 1.6%)
1.4(+1.4%)
1.4(+1.4%)
EIA 1.51 ( +2% )
1.47 (+1.52% )
1.61 (+1.64%)
OPEC 1.42 (+1.51%)
1.26 (+1.32%)
1.22 (+1.27%)
Oil demand determinants
•
•
•
•
•
•
•
• ……-
20
40
60
80
100
120
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Oil consumption (1965-2016)
World
OECD
Non-OECD
million b/d
Source: BP Statistical Review of World Energy
Demand “concentration risk”
Non-OPEC oil supply
•
•
•
•
US shale : the rebound in drilling has been led by oil, with an increasing focus on drilling in the Permian basin
Breakeven prices by basins
Source: World Bank, IEA, OGJ Analysis
227
50 41
228
0
0
46
240
220
50
100
150
200
250
Permian Eagle Ford Woodford Haynesville Williston Marcellus
Oil and gas rig count by basinsMay 2016-July 2017
Oil Gas
“
Structural and cyclical factors to cost deflation
Source: IEA WEI 2017
IEA US Shale Investment Cost Index
Source: IEA WEI 2017
Source of financing for US shale independent
Source: IEA World Energy Investment report 2017
Net debt of the majors and the average interest rate of corporate debt
Source: IEA World Energy Investment report 2017Majors: BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Shell and Total
US shale: Another investment bubble again so far? Probably yes
(From January OGJ F&R webcast)
An error-correction model was estimated by nonlinear least squares to identify the pace at which capex responds to changes the relative price.
ttttt wtiwtiwticapexcapex 1101211 ))(1(
$/bbl(WT)
2016 CapexChange (YOY)
2017 Capex Change(YOY)
$55-$60 14%
$43 -37.8%( Barclays' survey results: NA -37%)
•
•
•
Source: IEA July OMR
OECD Stocks
Long-term supply concerns
Final investment decisions for conventional oil projects
Source: IEA, Rystad Energy
World upstream oil and gas investment
Source: IEA WEI 2017
Upstream oil investment by majors by type
Source: IEA, Rystad Energy data
World conventional crude oil resources discoveries and sanctioned reserves
Source: IEA WEI 2017
Questions
Bob Tippee
Editor
Conglin Xu
Senior Editor-Economics
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