Oil price drivers 2012
Thina Margrethe Saltvedt, Senior Analyst Macro/Oil, Nordea Markets,
March 2012
29 March, 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
Illustrative – not meant to be exhaustive
Source: PIRA, Nordea Markets
Geopolitical
risk
Financial markets
4
The asset channel:
Oil as an inflation hedge : Weaker USD can increase inflationary pressure.
The PPP and cost channel:
Stronger USD makes oil more expensive for non-USD regions
Mar 07 Jul Nov
08 Mar Jul Nov
09 Mar Jul Nov
10 Mar Jul Nov
11 Mar Jul Nov
12 Mar
2300 2700 3100 3500 3900 4300 4700 5100 5500
30 40 50 60 70 80 90 100 110 120 130 140
150 USD/barrel
QE1 QE2 Opera-
tion Twist Brent
S&P 500
Index
WTI
Source: Reuters EcoWin
05 06 07 08 09 10 11 12
20 40 60 80 100 120 140
20 40 60 80 100 120
140 USD/barrel EUR/barrel
In EUR euro, green In USD, blue
Finanical activity can influence oil prices in the short term, but the underlying trend depends on the physical market
5 •
0%
2%
4%
6%
8%
10%
12%
20 40 60 80 100 120 140 160
14Aug07 14Aug08 14Aug09 14Aug10 14Aug11
USD/bbl
Money managers' net positions NYMEX WTI
WTI 1M Managed Money Net Pos. (RHS)
Supply side
Real investments are growing more slowly
Global E&P spending continues to rise by 9% in 2012 and 2013, but production costs are also increasing markedly
7 •
70 90 110 130 150 170 190 210 230 250
0 20 40 60 80 100 120 140
No v
‐00 Jul
‐01 Mar
‐02 No v
‐02 Jul
‐03 Mar
‐04 No v
‐04 Jul
‐05 Mar
‐06 No v
‐06 Jul
‐07 Mar
‐08 No v
‐08 Jul
‐09 Mar
‐10 No v
‐10 Jul
‐11
Crude ICE 1‐pos Oil price by Month
Cost Index
Sources: IHSI, Bloomberg and Nordea Markets E&P spending in USDm
Crude oil price and cost index
OPEC spare capacity can quickly become critically low if other
countries follow up on the embargo…
8 •
0 0.5 1 1.5 2 2.5
Turkey potential sanction South Korea potential sanction
Japan potential sanction Yemen shut‐in
Syria sanctions South Sudan EU sanctions
m b/d
20 40 60 80 100 120 140
0 1 2 3 4 5 6 7
1Q 200 1 3Q 200 1 1Q 200 2 3Q 200 2 1Q 200 3 3Q 200 3 1Q 200 4 3Q 200 4 1Q 200 5 3Q 200 5 1Q 200 6 3Q 200 6 1Q 200 7 3Q 200 7 1Q 200 8 3Q 200 8 1Q 200 9 3Q 200 9 1Q 201 0 3Q 201 0 1Q 201 1 3Q 201 1 1Q 201 2 Ca p aci ty …
m b/d m b/d
Sources: IEA, EIA, Ecowin and Nordea Markets
The situation can be exacerbated by
further supply
disruptions eg. Iraq,
Nigeria, Kazakhstan
99 9
OPEC strategy:
Cartel members need higher oil prices to balance their budgets,
0 20 40 60 80 100 120 140
Ku wa it Sa ud i Ar
ab ia V ene
zu el a
Ni ge ria
Ir aq Ira n
R us si a
Al ge ria
A ver ag e 2007 2009 2011
USD/barrel
Source: PIRA and IMF Dominant firm behavour: «It is optimal for the dominant firm to increase its
output substantially, but not so much as to fully offset the output collapse of the fringe
so that the oil price rises in tandem with oil sales», Nakov and Nuno, ECB (2011)
Source: PIRA
10Marginal cost of production changes over time
- Peaking production in low cost areas versus new production more challanging and technological developments
North Sea
Changes in trade relations can change the politcal stability
Middle East export trends to Europe, China, India and Asia Pacific
11 • 0
50 100 150
2008 2009 2010
From Middle East to India in MT
0 20 40 60 80 100 120 140
2008 2009 2010
From Middle East to China in MT
0 50 100 150
2008 2009 2010
From Middle East to Europe in MT
220 225 230 235 240
2008 2009 2010
From Middle East to Other
Asia Pacific in MT
North America heading towards self sufficiency
12 •
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 2 4 6 8 10 12 14 16 18 20
North American Liquids
production
2010 2020
2000 1990
100%
20%
40%
60%
80%
20
12
8
4 16
0
US implied imports (% of demand)
North America
implied imports (%
of demand)
Source: PIRA
Changes in product demand versus refinery capacity
Source: Bloomberg, PIRA 13 •
-60 -40 -20 0 20 40 60
Jan07 Jan08 Jan09 Jan10 Jan11 Jan12
USD/bbl
European Oil Product Crack Spreads
Spread to Dated Brent
ULSD 10 ppm FOB Brg FO 3.5% FOB Brg
Firm, but seasonally weaker after January
Stronger than expected due to limited supply after refinery closures Oil price spike amid diesel/gasoil
shortage summer 2008
Oil price spike created surplus fuel oil supply through high refinery runs and limited refinery conversion capacity
88 90 92 94 96 98 100 102 104
2010 2011 2012 2013 2014 2015 2016
m…
Demand side
Oil intensity has fallen markedly the last 20 years
15 •
Source: IEA
0 1 2 3 4 5 6
US crude oil
expenditure as a
fraction of GDP
World transportation oil demand by mode, when will we see a technological break through in the transportation sector?
16 •
Source: IEA 60%
52%
Rates of subsidisation for fossil-fuel consumption subsidies, 2010
17 •
Source: IEA
Obama – state of the union: « We have a supply of natural gas that can last America nearly one hundred
years, and my Administration will take
every possible action to safely develop this
energy».
18 •
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
Price outlook for other energy sources relative to oil
Initial assessment of shale gas resources in 48 major shale basins in 32 countries indicates a large potensial
19 •
Source: EIA
1,069
1,225
624
1,042
1,404
396
tcm
Contact details:
Thina Margrethe Saltvedt
Macro/Oil Analyst
Commodities Research Nordea Markets
Phone: +47 22 48 79 93 Mobile: +47 90 63 40 75
Thina.margrethe.saltvedt@nordea.com
20 •
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