oil market update · oil demand growth has been relatively low so far this year y/y total oil...
TRANSCRIPT
Oil market update
August 2019
Disclaimer
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Market Summary
• Brent is currently trading around $62/bbl, after falling over 7% on 1st August 2019 in response to
the US unexpectedly announcing a 10% tariff on an additional $300 billion worth of Chinese
imports from 1st September 2019. The announcement comes amid a weaker macroeconomic
environment, with the market largely expecting lower oil demand growth in 2019.
• Shortly after the G20 meeting in July 2019, where the US and China had initially called a truce on
imposing additional tariffs, the Vienna Alliance of OPEC and non-OPEC producers met and agreed
to extend current output cuts, initially implemented from January to June 2019, to the end of
March 2020. The decision to continue restricting output by a combined total of 1.2 mbd comes
against a backdrop of sustained increases in US oil supply.
• Deliveries of Urals crude to Europe via the Druzhba pipeline resumed in June 2019, following
organic chloride contamination in late April 2019. However, due to the complexity and scale of the
incident, disruptions are ongoing with some contaminated crude still remaining in the network.
• Refining margins had a volatile Q2 2019, reaching highs of $18/bbl to lows of $11/bbl. The global
RMM strengthened in July 2019 to around $15/bbl, largely supported by higher gasoline cracks.
Source: BP Internal, ICE, IEA
Crude prices remain volatile as fundamentals play tug of war with market sentiment
Source: NYMEX, ICE
Global Crude Prices
Futures as of 23/07/19
After a strong start to the year crude prices have felt downward pressure following evidence of slower economic growth amid ongoing global trade tensions. Early June 2019 saw Brent fall sharply by almost $10/bbl across just three trading days (to $61/bbl) as sentiment deteriorated. After recovering to above $65/bbl in July 2019, Brent once again fell sharply on 1st
August in response to the announcement that the US would impose a 10% tariff on an additional $300 billion worth of Chinese imports from 1st September 2019.
20
30
40
50
60
70
80
2015 2016 2017 2018 2019 2020
$/bbl
WTI Brent WTI Futures Brent Futures Dubai
Oil demand growth has been relatively low so far this year
Y/Y total oil demand growth Y/Y OECD products demand growth
Source: IEA
The IEA recently revised down their forecast for 2019 oil demand growth by a further 100 kbd to 1.1 mbd vs 1.4 mbdat the start of the year, citing weakness in the global economy and in particular China. IEA figures indicate that demand growth recovered to 810 kbd in 2Q 2019, from lows of 310 kbd in 1Q 2019, as OECD economies boosted LPG/ethane and jet/kerosene use.
-1
0
1
2
3
2013 2014 2015 2016 2017 2018 2019
mbd
OECD Non-OECD Total
2019 total of 1.2 mbd is subject to latest available data from the IEA and was subsequently revised to 1.1 mbd
-1000
-800
-600
-400
-200
0
200
400
600
800
1000
2013 2014 2015 2016 2017 2018 2019
kbd
LPG and Ethane Naphtha Motor Gasoline
Jet and Kerosene Diesel Gasoil
Residual Fuel Other Products Total Products
Net speculative length has fallen sharply from recent highs
Net Speculative Length (2012-2019)
Source: ICE
Net Speculative Length (2017-2019)
After reaching over 400 thousand contracts in May 2019, net speculative length fell sharply throughout June 2019, with the initial fall largely exacerbating the sell-off in Brent seen early in the month. After steadying at around 250 thousand contracts for a number of weeks, net speculative length increased modestly in late July 2019. However, the contracts volume remains low relative to average levels observed in 2017 and 2018.
25
45
65
85
105
125
145
0
100
200
300
400
500
600
700
2012 2013 2014 2015 2016 2017 2018 2019
$/bbl
Thousands of contracts
Brent Net Spec Length Brent Price (RHS)
0
10
20
30
40
50
60
70
80
90
0
100
200
300
400
500
600
700
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19
Thousands of contracts
$/bbl
Brent Net Spec Length Brent Price (RHS)
9.3
9.6
9.9
10.2
10.5
Ja
n
Fe
b
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
No
v
De
c
mbd
'09-'13 2014 2015 2016 2017 2018 2019 Announced cut
OPEC+ agreed to extend their 1.2 mbd production cut until March 2020
Source: IEA
Russia Crude SupplySaudi Crude SupplyOPEC Crude Supply
NB: assumes 100% of production cut applied to crude oil
The announcement by OPEC+ came largely in line with market expectations and hence provided limited price support. The group has previously shown high compliance to the cuts, which have been in place since January 2019, as they seek to counter non-OPEC supply growth and prevent a build up of global inventories. OPEC production stood at 29.1 mbd in June 2019, down from 31.8 mbd in June 2018.
7
8
9
10
11
12
Ja
n
Fe
b
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
No
v
De
c
mbd
Th
ou
san
ds
28
30
32
34
Ja
n
Fe
b
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
No
v
De
c
mbd
2.0
2.5
3.0
3.5
4.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016 2017 2018 2019
Iranian production has declined significantly due to the full imposition of US sanctions, whilst Venezuelan output also remains low
Source: IEA
Iran Crude Supply Venezuela Crude Supply
Iranian crude supply fell by over 450 kbd from March to June 2019 as the US removed sanctions waivers, suppressing the country’s oil exports. Iranian crude exports stood at 530 kbd in June 2019, down from 2.7 mbd in June 2018. Venezuelan crude supply also continues to be impacted by sanctions and economic unrest, with output hovering below 1 mbd since March 2019.
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
However, US production growth continues to offset losses elsewhere
Source: IEA, EIA
US Crude Supply Cushing Stocks
0
10
20
30
40
50
60
70
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mb
2014 2015 2016 2017 2018 2019
6
8
10
12
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 20152016 2017 20182019
US crude supply continues to reach new highs, hitting over 12.2 mbd in June 2019. Extreme weather in the Gulf of Mexico resulted in some supply disruption in early July 2019, however production has largely recovered since. Stocks remain elevated as a result of pipeline bottlenecks although recent weeks have seen draws at Cushing supporting the WTI benchmark.
Total OECD crude stocks have built since the beginning of 2019, largely driven by OECD Americas
Total OECD Crude Stocks Regional OECD Total Crude Stocks
Source: IEA
OECD crude stocks built by over 45 mb from January to May 2019, returning to the level they were at 12 months earlier. OECD Americas was the key driver, with stocks building by over 20 mb across the period.
2,100
2,200
2,300
2,400
2,500
2,600
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mb
'09-'13 range 2014 2015
2016 2017 2018
2019
900
1,000
1,100
1,200
1,300
1,400
500
550
600
650
700
2012 2013 2014 2015 2016 2017 2018 2019
mbmb
OECD Asia Oceania OECD Europe OECD Americas (RHS)
WTI finds price support relative to Brent
Source: NYMEX, ICE, S&P Global Platts ®Futures as of 23/07/19
Brent-WTI spread
The Brent-WTI differential recently narrowed from $11/bbl in May 2019 to around $7/bbl in July 2019 as WTI found some strength from significant stock draws at Cushing, the major trading hub for the US benchmark. From late June 2019, the fire and subsequent closure of the Philadelphia Energy Solutions refinery in the US tightened the gasoline market and therefore gave an additional boost to WTI, which has a high gasoline yield.
-2
0
2
4
6
8
10
12
14
16
2014 2015 2016 2017 2018 2019
$/bbl
Brent-WTI Brent-WTI Futures
European product markets strengthen as peak demand season takes hold
Product Cracks (NWE FOB)
Source: S&P Global Platts ®
European cracks all rose from June to July 2019. Jet and fuel oil rallied in response to high demand whilst peak demand season for gasoline also coincided with the PES refinery fire, boosting US imports of gasoline thus providing further price support. Naphtha fell to lows of -$14/bbl in early June 2019 on weak demand but has since recovered somewhat.
-16
-6
4
14
24
Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18 Nov 18 Jan 19 Mar 19 May 19 Jul 19
$/bbl
Naphtha Gasoline Jet Diesel HSFO
Refinery margins have fluctuated in line with volatile gasoline marketsGlobal refinery margins fell by over $5/bbl at the start of June 2019 to lows of $11/bbl as gasoline cracks dropped by over 60%. The subsequent recovery in gasoline values is reflected in the RMM, which in late June 2019 rose back towards Q2 2019 average levels of around $15/bbl.
BP Global Refining Marker Margin (RMM)
Source: BP Analysis
0
5
10
15
20
25
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19
$/bbl
Quarterly Average
The BP Global Refining Marker Margin (RMM) is a simplified indicator that reflects the margins achieved on gasoline and diesel only. The RMM may not be representative of the margin achieved by BP in any period because of BP’s particular refinery configurations and crude and product slates.
OECD refinery runs have been impacted by higher than average TARs in 2019
US crude runs
Source: EIA, IEA
OECD crude runs
US crude runs in Q2 2019 were over 250 kbd lower year-on-year, despite rising seasonally, with the fire and subsequent closure of the 335 kbd PES refinery affecting runs from late June 2019. Total OECD crude runs have also fallen year-on-year, down by over 250 kbd on average from January to April 2019.
34
36
38
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016 2017 2018 2019
13
14
15
16
17
18
19
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
Th
ou
san
ds
OECD Product Demand
Source: IEA
LPG & Ethane Naphtha
Gasoline Jet/Kerosene
Diesel/Gasoil Residuals
OECD product demand presents a mixed storyAcross the first five months of 2019 for which data is available, OECD product demand has been mixed. Naphtha, gasoline and residuals have all seen a fall in demand year-on-year, whilst LPG & ethane and distillate demand has grown moderately year-on-year.
4.2
4.8
5.4
6.0
6.6
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
2.9
3.2
3.5
3.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
13.0
13.8
14.6
15.4
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
3.4
3.8
4.2
4.6
5.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
1.6
2.0
2.4
2.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016 2017 2018 2019
11.8
12.6
13.4
14.2
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
Healthy residuals demand in OECD Europe comes in contrast to weak OECD Asia Oceania
OECD Europe Residuals Demand
Source: IEA
OECD Asia Oceania Residuals Demand
The fall in total OECD demand for residuals so far this year can be attributed to weakness in OECD Asia Oceania. Whilst OECD Europe has seen robust demand, OECD Asia Oceania saw demand fall by 100 kbd from February to May 2019 largely driven by low bunker demand in the region.
0.8
0.9
1.0
1.1
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016 2017 2018 2019
0.2
0.6
1.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
150
200
250
300
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
kbd
'09-'13 range 2014 2015 2016 2017 2018 2019
German jet demand spikes whilst naphtha demand falters
Germany Jet/Kerosene Demand
Source: IEA
Germany Naphtha Demand
German jet/kerosene demand spiked to 280 kbd in April 2019, before subsequently falling 50 kbd in May 2019. Overall, jet/kerosene demand in Germany has been 35 kbd higher year-on-year from January to May. Conversely, German naphtha demand declined sharply from February to April 2019 to lows of 230 kbd, before recovering to 280 kbd in May 2019.
200
250
300
350
400
450
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
kbd
OECD product stocks build after steady monthly draws between January and April 2019
OECD Total Product Stocks OECD Total Product Stock Change
Source: IEA
OECD product stocks built by almost 20 mb from April to May 2019, regaining some of the 45 mb draw that occurred in the first four months of the year. In May 2019, middle distillates were the only product to draw month-on-month, and gasoline stocks built after three consecutive month-on-month draws.
1,500
1,600
1,700
1,800
1,900
2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mb
'09-'13 range 2014 20152016 2017 20182019
-80
-60
-40
-20
0
20
40
60
80
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19
Monthly change (mb)
Motor gasoline Middle distillates
Residual fuel oil Other products
Upcoming events
• The 45th G7 summit is scheduled for 24th-26th August 2019, in Biarritz, Nouvelle-
Aquitaine, France.
• OPEC are due to meet in Vienna on 5th December 2019, and will be joined by other
members of OPEC+ on 6th December 2019.
o The meeting will provide an opportunity to assess the extent to which their
production cut has succeeded in rebalancing the market.
• IMO 2020: new 0.5% sulphur limit on bunker fuels to come into force on 1st January 2020.