Predicting Oil Prices
Thina Margrethe Saltvedt, Senior Analyst Macro/Oil
November 2012 @ThinaSaltvedt
1 December, 2012 2
Oil price
drivers Financial markets
Commercial/Non-commercials USD
Asset prices Liquidity injections
Risk Appetite
Short/Medium term
Inventory levels OPEC goals and disipline
Weather Refinery capacity Income development
Long-term Supply/Demand
OPEC target price and spare capacity Non-OPEC peak production Emerging Markets’ demand growth
Renewable energy and regulatory changes
Oil intensity Technological changes
Source: PIRA, Nordea Markets
Geopolitical
risk
Nordea: Brent oil price forecast in USD per barrel
3 •
04/09/2012 Q1 Q2 Q3 Q4 Year
2011 106 115 112 110 111
2012E 118 109 112 109 112
2013E 108 110 112 114 111
2014E 114 114 116 116 115
Forward curve: Large fluctuations in short term contracts
4 •
«Speculators» have cut their long oil bets to a two year’s low
Late June Nov 2011 Now
March
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000
0 20 40 60 80 100 120 140 160
20Nov07 20Nov09 20Nov11
USD/bbl
Managed Money net positions vs. WTI price
WTI Net positions, rhs
Sources: Bloomberg, Ecowin Reuters, CFTC
High oil prices and a weaker EUR vs USD
5 •
05 06 07 08 09 10 11 12
1.1500 1.2000 1.2500 1.3000 1.3500 1.4000 1.4500 1.5000 1.5500 1.6000 1.6500 1.7000 1.7500
30 40 50 60 70 80 90 100 110 120 130 140 150
Source: Ecowin/Reuters Crude Oil Brent, blue
EUR/USD
EUR/USD, dark blue
USD/barrel EUR/USD
Inflation worries
Risk appetite
on/off
Poltical risk and Euro crisis
Liquidity injections can
influence oil prices through
higher expected growth or
inflation
109 112109
20 40 60 80 100 120 140
0 1 2 3 4 5 6
4Q2002 2Q2004 4Q2005 2Q2007 4Q2008 2Q2010 4Q2011
USD/bbl
mb/d
Implied OPEC effective spare capacity and Brent price forecast
Effective spare Effective spare (f'cast) Brent 1.pos, rhs Brent (f'cast), rhs
Oil market searches for price required for next trillion barrels
6 •
World runs out of spare capacity
Source: PIRA, IEA, Nordea Markets
0 20 40 60 80 100 120
140 USD/barrel 2007 2009 2011 2012
Oil exporters’ budget breakeven
oil prices to increasingly affect
oil price formation
7 •
0 2 4 6 8 10
Saudi Arabia Russia Iran UAE Kuwait Nigeria Iraq Angola Norway Venezuela Algeria Qatar Canada Kazakhstan Azerbaijan
Million barrels per day
-1200 -800 -400 0 400 800 1200 1600
Th o u san d b ar re ls p e r d ay
15 largest oil exporters in the world - only 2
politically stable 10 largest oil
exporter in the world today may have a net export deficit in 2017 – who will cover the gap?
Changes in export volumes in 2017 from 2011
Source: IEA, EIA and Nordea Markets
Worldwide upstream oil and gas investment and upstream investment cost index
8 •
Source: IEA
Do we see a supply response
after all?
Shale oil revolution counterbalance supply disturbances outside OPEC
10 •
Source: Reuters EcoWin
90 92 94 96 98 00 02 04 06 08 10 12 0
25 50 75 100 125 150
0.0 2.5 5.0 7.5 10.0 12.5 15.0
17.5 USD per mmBtu
Natural Gas Henry Hub, lhs
WTI light sweet crude, rhs
USD per barrel
Source: PIRA and Reuters Ecowin Natural gas
Oil
Global unconventional oil: average production cost curve
More expensive oils replace natural decline of conventional oils
11 •
Source: IEA
World oil supply – still fields yet-to-be found to cover expected future oil demand growth
12 •
Source: IEA
World offshore crude oil production
Deepwater production moving up on the agenda – Gulf of Mexico, Brazil and West Africa
13 •
Source: IEA, Subsea7 Gulf oil exploration seeing steady recovery.
Before: 30% of US oil production. Now: 20%, next ten years rise to 28%
From 4.8m b/d in 2011 to
8.7m b/d in 2035
World oil demand by sector : Transportation sector accounts for 52% of total oi demand – expected to rise to 60% by 2035
14 •
Source: IEA
Contact details:
Thina Margrethe Saltvedt
Senior Macro/Oil Analyst Commodities Research Nordea Markets
Phone: +47 22 48 79 93 Mobile: +47 90 63 40 75
Thina.margrethe.saltvedt@nordea.com
@ThinaSaltvedt
15 •
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