political instability & crude oil pricing: short term outlook
DESCRIPTION
Political Instability & Crude Oil Pricing: Short Term Outlook. Presented at ISM Midwinter Conference February 2006. Petral Chronicle February 7 th , 2004. Saudi Royal Family Abdicates Country Spirals into Chaos Crude Oil Prices Spike to $45 per barrel. Petral Chronicle August 7 th , 2004. - PowerPoint PPT PresentationTRANSCRIPT
Political Instability & Crude Oil Pricing:Political Instability & Crude Oil Pricing:Short Term OutlookShort Term Outlook
Presented atISM Midwinter Conference
February 2006
Page # 2Petral Consulting Companyknowledge to bridge the gap
Petral ChroniclePetral ChronicleFebruary 7February 7thth, 2004, 2004
Saudi Royal Family AbdicatesSaudi Royal Family AbdicatesCountry Spirals into Chaos
Crude Oil Prices Spike to $45 per barrel
Page # 3Petral Consulting Companyknowledge to bridge the gap
Petral ChroniclePetral ChronicleAugust 7August 7thth, 2004, 2004
Conservative & Pro-Western Factions of Saudi Royal Family at War
Country Spirals into Chaos
Crude Oil Prices Spike to $60 per barrel
Page # 4Petral Consulting Companyknowledge to bridge the gap
Petral ChronicleFebruary 7th, 2005
Conservative & Pro-Western Factions of Saudi Royal Family at War
Country Spirals into Chaos
Crude Oil Prices Spike to $100 per barrel
Page # 5Petral Consulting Companyknowledge to bridge the gap
Petral ChronicleFebruary 7th, 2005
Toto … we’re not in Kansas anymore
Crude Oil Prices Spike to $100 per barrel
Page # 6Petral Consulting Companyknowledge to bridge the gap
Flashpoints & Sources of Flashpoints & Sources of InstabilityInstability
Venezuela» Chavez has consolidated his power» Chavez uses oil revenues to fund government
spending // maintenance of oil fields suffering» Oil fields in western Venezuela are high
maintenance with natural decline rates of 20-25% per year – EIA statistics say production has been constant at 2.5 MM Bpd for 2 years
Page # 7Petral Consulting Companyknowledge to bridge the gap
Other FlashpointsOther Flashpoints& Sources of Instability& Sources of Instability
Indonesia» Al Qaeda Has Mounted 2 Major Attacks» Local Islamic Forces Engaged in Civil War with Government
Forces» Tourism Suffering // Crude Production Unaffected .. So Far
Nigeria» Conflict in Niger Delta Will Continue to Disrupt Production
Page # 8Petral Consulting Companyknowledge to bridge the gap
Crude Prices & Saudi Crude Oil ProductionCrude Prices & Saudi Crude Oil Production
6
6.5
7
7.5
8
8.5
9
9.5
10
01:1
02:1
03:1
04:1
05:1
06:1
Mill
ion
Bb
l per
Day
0
10
20
30
40
50
60
70
$ p
er B
arre
l
History Forecast Mid East Spot Price
Page # 9Petral Consulting Companyknowledge to bridge the gap
Crude Prices & Crude Prices & Middle East Crude Oil ProductionMiddle East Crude Oil Production
6
810
12
14
1618
20
22
24
01:1
02:1
03:1
04:1
05:1
Mill
ion
Bb
l per
Day
0
10
20
30
40
50
60
$ p
er B
arre
l
History Forecast Mid East Spot Price
Page # 10Petral Consulting Companyknowledge to bridge the gap
Crude Prices & Russia Crude Oil ProductionCrude Prices & Russia Crude Oil Production
6
6.5
7
7.5
8
8.5
9
9.5
01:1
02:1
03:1
04:1
05:1
Mill
ion
Bb
l per
Day
0
10
20
30
40
50
60
$ p
er B
arre
l
History Forecast Mid East Spot Price
Page # 11Petral Consulting Companyknowledge to bridge the gap
Crude Prices & Crude Prices & North Sea Crude Oil ProductionNorth Sea Crude Oil Production
2
2.5
3
3.5
4
4.5
5
5.5
6
01:1
02:1
03:1
04:1
05:1
Mill
ion
Bb
l per
Day
0
10
20
30
40
50
60
70
$ p
er B
arre
l
History Forecast Brent Spot Price
Page # 12Petral Consulting Companyknowledge to bridge the gap
Crude InventoryCrude InventoryGulf Coast & Mid-ContinentGulf Coast & Mid-Continent
150160170180190200210220230240250
01:1
02:1
03:1
04:1
05:1
Mill
ion
Bar
rels
History Forecast Average
Page # 13Petral Consulting Companyknowledge to bridge the gap
U.S. Crude ImportsU.S. Crude Imports
66.5
77.5
88.5
99.510
10.511
01:1
02:1
03:1
04:1
05:1
06:1
Mill
ion
Bb
l per
Day
History Forecast 00-02 Average
Page # 14Petral Consulting Companyknowledge to bridge the gap
U.S. Refinery Crude RunsU.S. Refinery Crude Runs
89
1011
12
13
1415
16
17
01:1
02:1
03:1
04:1
05:1
Mill
ion
Bb
l per
Day
History Forecast Average
Page # 15Petral Consulting Companyknowledge to bridge the gap
WTI minus BrentWTI minus Brent
0
0.5
1
1.5
2
2.5
3
3.5
4
2003
:1
2004
:1
2005
:1
2006
:1
2007
:1
Do
llars
per
Bb
l
History Forecast 00-02 Avg.
Page # 16Petral Consulting Companyknowledge to bridge the gap
WTI minus Dubai/OmanWTI minus Dubai/Oman
0
2
4
6
8
10
12
14
2003
:1
2004
:1
2005
:1
2006
:1
2007
:1
Do
llars
per
Bb
l
History Forecast 00-02 Avg.
Page # 17Petral Consulting Companyknowledge to bridge the gap
Gulf Coast Refinery Crack Spread MarginGulf Coast Refinery Crack Spread Margin
0
5
10
15
20
25
30
35
40
45
03:1
04:1
05:1
06:1
Cen
ts p
er G
allo
n
History Forecast 01-03 Avg.
Page # 18Petral Consulting Companyknowledge to bridge the gap
U.S. Gasoline ProductionU.S. Gasoline Production
44.5
55.5
66.5
77.5
88.5
9
01:1
02:1
03:1
04:1
05:1
06:1
Mill
ion
Bb
l per
Day
History Forecast Average
Page # 19Petral Consulting Companyknowledge to bridge the gap
U.S. Gasoline ImportsU.S. Gasoline Imports
300400500600700800900
1000110012001300
01:1
02:1
03:1
04:1
05:1
06:1
Th
ou
san
d B
bl p
er D
ay
History Forecast
Page # 20Petral Consulting Companyknowledge to bridge the gap
U.S. Gasoline InventoryU.S. Gasoline Inventory
160
170
180
190
200
210
220
230
01:1
02:1
03:1
04:1
05:1
06:1
Mill
ion
bar
rels
History Forecast Average
Page # 21Petral Consulting Companyknowledge to bridge the gap
Gulf Coast Refinery MarginGulf Coast Refinery Margin3-2-1 Crack Spread3-2-1 Crack Spread
05
1015
20
25
3035
40
45
01:1
02:1
03:1
04:1
05:1
06:1
07:1
Mill
ion
bar
rels
History Forecast 2000-2002 Avg.
Page # 22Petral Consulting Companyknowledge to bridge the gap
Professional NYMEX Crude TradersProfessional NYMEX Crude TradersLong Positions- Short PositionsLong Positions- Short Positions
-80-60-40-20
020406080
100
Ap
r 03 Ju
l
Oct
2004 Ap
r
Jul
Oct
2005 Ap
r
Jul
Oct
2006
Th
ou
san
d N
et L
on
g C
on
trac
ts
Page # 23Petral Consulting Companyknowledge to bridge the gap
Professional NYMEX Crude TradersProfessional NYMEX Crude Traders# of Long Positions# of Long Positions
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
Ap
r 03 Ju
l
Oct
2004 Ap
r
Jul
Oct
2005 Ap
r
Jul
Sep Oct
2006
Thou
sand
Lon
g C
ontr
acts
0102030405060708090100
# of
Tra
ding
Fir
ms
Page # 24Petral Consulting Companyknowledge to bridge the gap
Professional NYMEX Crude TradersProfessional NYMEX Crude Traders# of Short Positions# of Short Positions
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
Ap
r 03 Ju
l
Oct
2004 Ap
r
Jul
Oct
2005 Ap
r
Jul
Sep Oct
2006
# o
f S
ho
rt C
on
trac
ts
0
20
40
60
80
100
120
# of
Tra
ding
Fir
ms
Page # 25Petral Consulting Companyknowledge to bridge the gap
WTI at Cushing: Cash MarketWTI at Cushing: Cash Market
20
30
40
50
60
70
80
2003 Ap
r
Jul
Oct
2004 Ap
r
Jul
Oct
2005 Ap
r
Jul
Oct
2006 Ap
r
Jul
Oct
2007 Ap
r
Jul
Oct
Do
llars
per
Bb
l
History Forecast
Page # 26Petral Consulting Companyknowledge to bridge the gap
Conclusions & ObservationsConclusions & Observations
From the perspective of historical correlations, fundamentals are bearish for WTI prices.
From a NYMEX perspective, too many traders expanded short positions in the 4th quarter. a price rebound in January has been a 100% lock since 1999 and short-covering reinforced the rebound.
Fundamentals will remain bearish but traders have to be concerned about the upcoming hurricane season – this factor is likely to kick in early this year (April/May).
Page # 27Petral Consulting Companyknowledge to bridge the gap
Conclusions & ObservationsConclusions & Observations
Once a dependable source of incremental crude supply, Saudi Arabia has not increased crude oil production since the 3rd quarter of 2004 (18 months)
Aramco says requests for crude are being met 100%.
Russia resumed state control of oil and gas production and is becoming viewed as an unreliable supplier
Page # 28Petral Consulting Companyknowledge to bridge the gap
Conclusions & ObservationsConclusions & Observations
Uncertainties regarding crude production in Iraq, Iran Nigeria and Venezuela likely to keep traders and buyers ‘on edge’
Crude production In Venezuela likely to be stagnant or gradually declining during 2006/2007 due to the impact of Chavez “reforms” of PDVSA // several major Gulf Coast refineries are vulnerable
The bullish trend is likely to remain intact through August or September
Page # 29Petral Consulting Companyknowledge to bridge the gap
Long Term OutlookLong Term Outlook
Due to bullish short term considerations and growing uncertainties about global supply development, Petral forecasts for crude oil prices of $50-60 per barrel now extend into 2008.
The uncertainties about demand growth in China, lagging development of new production in key areas like Russia, delays in development of production in Iraq point to stronger prices for much longer than we had forecast just a year ago.
Page # 30Petral Consulting Companyknowledge to bridge the gap
West Texas IntermediateWest Texas Intermediate
0
10
20
30
40
50
60
70
Dol
lars
per
Bar
rel
1990
1995
2000
2005
2010
2015
History Forecast