U of A Energy Club World Oil Markets Richard Dixon.
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Transcript of U of A Energy Club World Oil Markets Richard Dixon.
U of A Energy ClubWorld Oil Markets
Richard Dixon
Not for the Faint-hearted1. How many industries are:– in such a constant state of justification to their customers?– seen by their customers as irresponsible and untrustworthy?– in such an adversarial relationship with their customers?
2. At the same time, how many industries have to deal with customers that are largely disengaged, uninterested, often energy illiterate and may even be irresponsible in usage?
3. And, paradoxically, customers who are so dependent on their products?
4. How many industries can’t reliably predict with any degree of certainty the price of their product 13 weeks out but make investment decisions on IT, infrastructure, etc. based on those predictions in $B’s?
World Primary Energy Consumption by fuel
What is traded?
• Over 200 grades of oil globally measured by:– Energy content (economic viewpoint also heavy-light spread)
• Light crude = 35 to 40o API• Medium crude = 21 to 34• Heavy crude = 16 to 20
– Higher viscosity = think need diluents (naptha)
– Sulphur content• Sweet = less than 0.5% sulphur
– Location• WTI (Cushing) = Nymex• Brent (North Sea) = ICE = Brent Dated
• So what is WCS and how does it compare?
Annual average Brent oil price (US$/bbl) 1970 - 2012
Oil: Market Fundamentals
Demand• Non-OECD demand, esp. China, India & Brazil
– Consumption well below 10bbls/capita average of major EU consumers
• Sector demand– Transportation – seasonality - climate, vehicle efficiency– Power generation, heating (see Sankey diagrams)– Non-energy uses (lubes, etc)
• Price• Income (GDP per capita) – strong vs. weak economic
growth
Supply• OPEC (75% of global
reserves and 40+% of production)
• Rise of shales (IEA’s forecast changes since 2010)
• Other unconventionals (deepwater – subsalts, oil sands tight oil)
Oil: Market Fundamentals
19651968
19711974
19771980
19831986
19891992
19951998
20012004
20072010
2013-
5000
10000
15000
20000
25000
30000
35000
40000
Global Oil Production in BBL / Year
OPECNon-OPECEuropean UnionFormer Soviet Union
Inventories & Spare Capacity• Held for supply shocks by nations or
trading/refining in the supply chain– SU Strategic Petroleum Reserve (SPR)• Theoretically 38 days supply – average 727 mbbls• Reference Japan at 580 mbbls, China at 685, EU require
oil companies to have 90 days supply
Oil: Market Fundamentals
Product Prices• Which drives which?– Crude price drives crude product price, right?
Maybe• Tight refining capacity (market assumes that demand
for crude will increase as companies seek to take advantage of high product prices also the reverse)
Oil: Market Fundamentals
Financial Crude markets• Crude financial markets (multiples larger)– Less than 1% of Nymex contracts go to actual
delivery– Key Players• Commercial – producers, refineries, transportation, etc.• Mainstream – institutional• Commodity Traders
Oil: Market Fundamentals
Other• Political– Middle East premium
• Currency fluctuations
Oil: Market Fundamentals
Iraqi• No noticeable impact to crude production in southern Iraq
despite current turmoil.• New government under PM Hussein al Abadi unlike to seriously
alter oil development policy trajectory. • The IEA forecast shows 870,000 bpd in incremental growth in
Iraqi output by 2019 (over full-year 2014 levels), and majority of Iraqi exports are Basrah Light ( 34 degrees API). • Incremental volumes of Basrah Light would not be going
into the Atlantic Basin, and will need to be absorbed overwhelmingly in Asia.
• China largest purchaser of Iraqi exports (imports of Iraqi crudes have surged from 225,687 b/d in 2010 to 472,209 b/d in 2013, making Iraq China’s fifth largest oil supplier for that year, supplying 8.3% of total imports).