Oil and Natural Gas Analysis at Norges Bank

(1)

Pål Winje ( International Department), workshop on modeling and forecasting oil prices, 22 March 2012

(2)

The Norwegian Petroleum Sector as a Share of Macroeconomic Variables

Percent, 2010

2

21

47

26 26

0 10 20 30 40 50 60

GDP Exports Goverment

Revenue

Investment

Sources: Ministry of Petroleum and Energy, Norwegian Petroleum Directorate

(3)

Three topics for my talk

 Oil price forecasts in the Monetary Policy Report

 The structural story of oil prices

 What about natural gas prices?

3

(4)

Oil prices in the Monetary Policy Report

4

(5)

Four options for forecasting oil prices

 Spot price

 Futures prices

 Judgement based

 Model based

5

(6)

Why futures prices?

 Consistent with the approach for other exogenous variables

 Cautious – a technical assumtion in line with the market

 Close to the alternatives

 Common among other central banks

 Context – allow for discussion

6

(7)

Oil price (Brent Blend)

USD per barrel. Daily figures. January 2000 – December 2015

0 20 40 60 80 100 120 140 160

2000 2002 2004 2006 2008 2010 2012 2014

Oil price

Futures MPR 1/12 Futures MPR 3/11

7 International Department

Source: Thomson Reuters

(8)

8 Source: IEA

International Department

(9)

Spare production capacity for crude oil in OPEC

Million barrels per day. Three month moving average. March 1994 – February 2012.

0 1 2 3 4 5 6 7

1994 1997 2000 2003 2006 2009

Annual figures. 1970 – 2011.

9 Source: EIA

0 2 4 6 8 10 12

1970 1980 1990 2000 2010

International Department

(10)

Structural story

10

(11)

Oil price and Chinese imports of crude oil

3 month moving average. January 1994 – March 2012.

Oil price: USD per barrel. Imports: Million metric ton per month

0 20 40 60 80 100 120 140

0 5 10 15 20 25

1994 1997 2000 2003 2006 2009 2012

Chinese oil imports (LHS) Oil price (RHS)

11 Source: Thomson Reuters International Department

(12)

Change in global oil consumption and production 2005 – 2011

Million barrels per day

-6 -4 -2 0 2 4 6 8 10

OECD Non-OECD Production

12 Norges Bank Monetary Policy

Sources: Energy Information Administration and Norges Bank

(13)

Long term marginal costs

 World Energy Outlook 2011

 oil prices in the range from 70 to 90 US dollars

per barrel are needed to cover private companies’

long-term all-in costs for new oil outside OPEC.

 This composite measure is probably a form of average, so long-term marginal costs are

arguably higher.

(14)

Supply challenges ahead

 IEA’s chief economist Dr Fatih Birol

 Due to high decline rates in current oil fields, fresh sources of oil equivalent to the output of

four Saudi Arabias will have to be found simply to maintain present levels of supply by 2030

 i.e. even without any growth in global oil demand over that period

(15)

Target price from OPEC

 Saudi Arabia, as the key OPEC swing producer, has recently stated that it aims at an oil price

around 100 dollars per barrel.

(16)

Natural gas prices

16

(17)

Oil and gas production on the Norwegian continental shelf

Millions of Sm³ oil equivalents. 1990-2015¹⁾

0 40 80 120 160 200

1990 1995 2000 2005 2010 2015

Oil Gas

Source: Norwegian Petroleum Directorate

¹⁾ Figures for 2011 - 2015 are projections from The shelf 2010

(18)

Export price of Norwegian gas and oil

Oil: NOK/barrel. Gas: NOK/Sm³

0 0.5 1 1.5 2 2.5 3

0 100 200 300 400 500 600 700

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

Oil price, lagged two quarters (LHS)

Gas price (RHS)

18 Source: Statistics Norway and Norges Bank

(19)

Crash course in international gas pricing

 Much of the traded gas across borders in Europe and OECD Asia is sold under long-term contracts, with linkages to the price of oil or refined products.

 In a growing number of markets¹⁾, gas prices are set freely in the market, an approach known as gas-to- gas competition.

1) North-America, United Kingdom, Australia and increasingly in continental Europe

19

(20)

The relationship between prices for oil and natural gas

20

 Substitution effects both on the demand and supply side

 Common factors

 Arbitrage activity

(21)

Oil and gas prices

Monthly figures. USD/MMBtu. January 1997 – March 2012.

0 5 10 15 20 25

1997 1999 2001 2003 2005 2007 2009 2011

Oil, Brent

Gas UK, National Balancing Point Gas US, Henry Hub

Norwegian export price for gas (excluding LNG)

Sources: Thomson Reuters, Statistics Norway and Norges Bank

(22)

Reduced demand and increased supply in 2009

22

Sources: Statoil

(23)

Decoupled?

 Certainly for US natural gas prices

 Not for market based prices in UK

 And not for oil-indexed Norwegian prices, although renegotiations are reportedly

intensifying

 See Economic Commentaries 4/11: ”Increased gas exports, but what about prices?”

23

(24)

Gas prices

Monthly figures. USD/MMBtu. January 2000 - March 2012¹⁾

0 5 10 15 20

2000 2001 2002 2004 2005 2007 2008 2009 2011

Russian gas, At German border Norwegian export price for gas (excluding LNG)

Gas Japan, LNG imports

24

1) For March 2012 calculated as daily average Sources: Thomson Reuters, IMF and Statistics Norway

(25)

Oil and gas prices

Monthly figures. USD/MMBtu. January 1997 - March 2012.

Broken lines indicate futures prices April 2012 – January 2015¹⁾

0 5 10 15 20 25

1997 1999 2001 2003 2005 2007 2009 2011 2013

Oil, Brent

Norwegian export price for gas (excluding LNG)

Sources: Thomson Reuters, Statistics Norway and Norges Bank

1)Futures prices as at 19 March 2012

(26)

To summarize:

26

 We use futures prices for forecasting oil prices, but maybe some new insights today or

tomorrow?

 We believe oil prices are high for fundamental reasons, but may come down somewhat in the time ahead.

 Natural gas prices deserve attention.