outlook for international oil market - european gas hub · 2018-03-06 · u.s. crude oil production...

Outlook for International Oil

Market

The Institute of Energy Economics, Japan

Tetsuo Morikawa

Senior Economist, Manager, Oil Group, Fossil Fuels & Electric Power Industry Unit

423rd Forum on Research Works on July 26, 2016

IEEJ：August 2016 © IEEJ2016

IEEJ

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016

Crude oil demand

Demand in the first quarter of 2016 grew by 1.6 mb/d or 1.7% year on year to 95.2 b/d

U.S., Chinese and Indian demand especially for transportation drove overall oil

demand growth

1

Demand Changes (year on year)

(Source) IEA

-2

-1

0

1

2

3

4

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q

2010 2011 2012 2013 2014 2015 2016

million b/d

Others

Middle East

Other Asia

China

OECD Asia Pacific

OECD Europe

0

20

40

60

80

100

120

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q

2010 2011 2012 2013 2014 20152016

Others

Middle East

Other Asia

China

OECD Asia Pacific

million b/d


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Crude oil supply

Supply in the first quarter of 2016 grew by 1.4 mb/d or 1.5% year on year to 96.5 mb/d

The Middle East covered a production decrease in the Americas and Africa.

2

Supply Changes (year on year)

(Source) IEA

0

20

40

60

80

100

120

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q

2010 2011 2012 2013 2014 20152016

OPEC

Others

Africa

Latin AmericaChina

Former Soviet UnionOECD Asia PacificOECD EuropeOECD Americas

million b/d

-3

-2

-1

0

1

2

3

4

5

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q

2010 2011 2012 2013 2014 20152016

Others

OPEC

Africa

Latin America

China

Former Soviet UnionOECD Asia PacificOECD Europe

OECD Americas

million b/d


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Slumping upstream investment under low oil prices

Upstream oil and gas investment in 2015 fell by 13% from the previous year.

Particularly, North American investment posted a remarkable decline.

When would the upstream investment decline trigger a price hike? 3

Upstream investment and oil price

(Source) IEA


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U.S. crude oil production resisting low prices

4

While production declines, shale oil productivity continues to improve

Is the rig count hitting the bottom?

Crude oil exports are increasing, while the lifting of a crude oil export ban has had

little impact so far

Production Exports

(Source) EIA

0

2

4

6

8

10

12

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

Tight oil Conventional

million b/d

0

100

200

300

400

500

600

700

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

1,000 b/d


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U.S. oil demand remains brisk

5

Demand by product Vehicle sales

(Source) EIA (Source) Motor Intelligence

Demand is brisk for gasoline as well as LPG and jet fuel

Modest gasoline demand growth in the driving season

Vehicle sales in the first half of 2016 fell year on year

0

5,000

10,000

15,000

20,000

25,000

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

Others

Fuel oil

Diesel/Gas oil

Jet

Gasoline

Petro chemical feedstockLPG

1,000 b /d

0

200

400

600

800

1000

1200

1400

1600

1800

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

SUV/Pick up truck

Passenger vehicle

1,000 vehicles


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Energy and foreign policies

of U.S. presidential candidates

6

Further policy developments within Democrat could affect shale oil and gas

development

Trump’s exclusionist remarks pose risks for financial markets

Clinton Trump

Oil/gas

・Repealing oil industry subsidies and tax

incentives ・Toughening environmental regulations

on resources development including

hydraulic fracturing

・Supporting competitive energy

development without subsidies ・Countering market manipulation by OPEC

and other state-run oil companies

Foreign

policy

・Enhancing international cooperation to

prevent terrorism ・Supporting the Iran nuclear agreement

・Blocking immigration from the Middle East

・Opposing the Iran nuclear agreement

・Supporting Middle Eastern countries and

forces fighting against ISIS and other

extremist groups

(Sources) Republican Policy Platform, media reports


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Impacts of Brexit

7

Uncertainties exist about the timing for the U.K.’s official notice to exit from the EU and the EU’s

response

The single market access is traded off with immigration restrictions

Other uncertainties include Scotland’s possible independence, French and Dutch national

referendums and German and French elections

Financial market turmoil or recession will put downward pressure on oil demand and prices

U.K.: Official notice to exit from EU

EU：Decision on response

European Parliament approves exit

agreement

European Council agrees on exit

agreement

U.K. exist from EU

Exit negotiations

Brexit schedule U.K.-EU trade agreement options

Accession

to EEA

Signing

agree-

ment

WTO

Contributions

to EU Required △

Not

required

Single market

access ○ △ ×

Immigration

restrictions × △ ○

With

in 2

ye

ars

in p

rincip

le


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China’s oil demand in recovery

8


(Source) APEC (Source) China Association of

Automobile Manufacturers

Recovering from a slump in the second half of 2015, oil demand increased 4% year

on year in the first four months of 2016.

Vehicle sales are recovering from a plunge in February

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

LPG Gasoline

1,000b/d

0

500

1000

1500

2000

2500

3000

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 5

2012 2013 2014 2015 2016

Passenger vehicle Other passenger vehicleSUV Commercial vehicle

1,000 vehicles


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Brisk Indian demand

9

Demand growth accelerated in the second half of 2015. In the first four months of

2016, demand expanded 12% year on year.

Particularly, gasoline and diesel oil have driven oil demand growth. Vehicle sales

have been robust


0500

100015002000250030003500400045005000

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

Oil coke Fuel oil Naphtha Gas oil Diesel

Gasoline Jet LPG Others

1,000 b/d

0

50

100

150

200

250

300

350

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

Passenger vehicle SUV Commercial vehicle

1,000 vehicles

(Source) PPAC (Source) SIAM


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OPEC production remains high

Oil producing countries failed to freeze oil production expansion in April and at the OPEC

meeting in June

Middle Eastern countries have covered production falls in Nigeria, Libya and Venezuela

Crude oil production Production changes (year on year)

10

(Source) IEA

0

5

10

15

20

25

30

35

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 5

2012 2013 2014 2015 2016

million b/d

Iraq

Venezuela

UAE

Saudi Arabia

Qatar

Nigeria

Libya

Kuwait

Iran

Indonesia

Ecuador

Angola

Algeria-3

-2

-1

0

1

2

3

4

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 5

2012 2013 2014 2015 2016

Iraq

Venezuela

UAE

Saudi Arabia

Qatar

Nigeria

Libya

Kuwait

Iran

Indonesia

Ecuador

Angola

Algeria

million b/d


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Saudi oil production under new government

Saudi Arabia will continue to give priority to its market share in 2017 as well

Under the leadership of Deputy Crown Prince Mohammed bin Salman, Saudi Arabia

announced the ambitious Vision 2030. 11

Crude oil exports and supply Energy policy targets under Vision 2030

(Source) JODI

Crude oil Maintaining production capacity

at 12.5 million b/d

Natural

gas

Increasing output to 17.8 bcf/d

by 2020

Renewable

energy

Increasing power generation to

9.5 GW by 2030

Oil refining

capacity

Increasing capacity to 3.3 million

b/d

0

2

4

6

8

10

12

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

million b/d

Export Power generation Other domestic supply


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Iran oil output restoring pre-sanction level

12

Crude oil exports and supply Oil fields planned to introduce foreign

investment

April 2016 production rose back to 3.6 mb/d

While foreign investment is required to boost oil output to a policy target of 4.7 million b/d in

2021, IPC (Iran Petroleum Contract) development is in rough waters

(Source) JOGMEC

0

1

2

3

4

5

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016

Production Export Domestic supply

million b/d

(Source) JODI


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Russian crude oil output also remaining high

13

Crude oil production and supply Changes (year on year)

(Source) JODI

Russia has maintained oil output at more than 10 mb/d rivaling the Saudi level.

Russia intensively competes with the Middle East in exporting crude oil to Europe, while

exports to Asia expand via ESPO

0

1

2

3

4

5

6

7

8

9

10

11

12

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016


million b/d

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2012 2013 2014 2015 2016


million b/d


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OECD inventories

14

OECD crude oil inventories remain at the highest ever level

While supply and demand go in the direction of equilibrium, massive inventories hold down

price hikes

(Source) IEA

4,000

4,200

4,400

4,600

4,800

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

2011-2015 range 2015 2016 2011-2015 average

million bbl


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Financial market risks

15

Will coupling between oil and stock prices revive?

U.S. interest rate hikes will decelerate oil price hikes through the dollar’s

appreciation.

Oil prices and exchange rate Oil and stock prices

(Source) FRB

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20

40

60

80

100

120

140

Jan 1

2

Apr 12

Jul 1

2

Oct 1

2

Jan 1

3A

pr 13

Jul 1

3

Oct 1

3

Jan 1

4A

pr 14

Jul 1

4

Oct 1

4

Jan 1

5A

pr 15

Jul 1

5

Oct 1

5

Jan 1

6

Apr 16

Jul 1

6

Brent

WTI

Dow Jones industrial average

$/bbl $

1.0

1.1

1.2

1.3

1.4

1.5

1.6

20

40

60

80

100

120

140

Jan 1

2

Apr 12

Jul 1

2

Oct 1

2

Jan 1

3

Apr 13

Jul 1

3

Oct 1

3

Jan 1

4

Apr 14

Jul 1

4

Oct 1

4

Jan 1

5

Apr 15

Jul 1

5

Oct 1

5

Jan 1

6

Apr 16

Jul 1

6

Brent WTI €/$

$/bbl €/$


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Futures market

16 The non-commercial net long position has been expanding in the first half of 2016

Brent WTI futures trading volume

(Source) CME, ICE

Non-commercial net long position on

WTI futures

0

20

40

60

80

100

120

0

50

100

150

200

250

300

350

400

450

500

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oct-

14

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oct-

15

Non commercial net long WTI

1,000 contracts $/bbl

0

5

10

15

20

25

30

Jan

11

Jun

11

No

v 1

1

Ap

r 1

2

Sep

12

Feb

13

Jul 1

3

Dec

13

May

14

Oct

14

Mar

15

Au

g 1

5

Jan

16

Jun

16

ICE NYMEX

million contracts


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Supply-demand balance outlook

17

Demand growth, though decelerating, will be around 1.1 mb/d in 2017.

Supply growth will fail to catch up with demand growth, leading to a supply-demand

equilibrium toward 2017

(Source) IEEJ

-1

0

1

2

3

88

89

90

91

92

93

94

95

96

97

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2014 2015 2016 2017

million b/d

Demand Supply Gap


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Major factors to fluctuate oil prices toward 2017

18

Supply and demand fundamentals should boost prices

But considerable uncertainties about GDP growth, U.S. interest rate hikes and

Brexit will slow down prices surge

Yet large-scale supply disruptions could trigger price hike at least for the short-

term

- U.S. interest rate hikes

- Brexit spillover

- Financial market turmoil

- U.S. production hitting bottom?

- Continuous demand growth

- Delay in U.S. interest rate hikes

- Supply disruptions


IEEJ

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Price increases since early this year to decelerate

19

(Source) IEA, The Institute of Energy Economics Japan

Prices will average $50/bbl for Brent, $49/bbl for WTI and $47/bbl for Dubai in

the second half of 2016, and $55/bbl for Brent, $54/bbl for WTI and $52/bbl for

Dubai in 2017.

0

20

40

60

80

100

120

140

Jan

12

Mar

12

May

12

Jul 1

2

Sep

12

No

v 12

Jan

13

Mar

13

May

13

Jul 1

3

Sep

13

No

v 13

Jan

14

Mar

14

May

14

Jul 1

4

Sep

14

No

v 14

Jan

15

Mar

15

May

15

Jul 1

5

Sep

15

No

v 15

Jan

16

Mar

16

May

16

Jul 1

6

Sep

16

No

v 16

Jan

17

Mar

17

May

17

Jul 1

7

Sep

17

No

v 17

$/bbl

WTI

Brent

Dubai

Iran sanction

lifted

China stock market crush

EUSanctionon Iran

Shale oil production

peaked in US

QE ended in US

Strike in KuwaitFire in Alberta

Force Majeure in

Nigeria

Brexit negotiation

US production

bottom out?

Economicslowdown?

OPEC meeting

Shale oil production growth in US

US interest rate rise?

US Presidential

election

OPEC meeting

Oil producing countries/OPEC

meetings


Contact :[email protected]

outlook for international oil market - european gas hub · 2018-03-06 · u.s. crude oil production...

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