Author: Tom Giaever-Enger Managing Editor Is a renowned commentator on the oil sector This overview was prepared and delivered the 3rd week of September 2004 On a rising market but BEFORE the record highs Author: Tom Giaever-Enger Managing Editor Sep 21, 2004
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Agenda Supply constraints Effects of limited supply Increased demand Effects of growth of demand Higher prices Effects of a high price environment
Agenda Supply constraints Effects of limited supply Increased demand Effects of growth of demand Higher prices Effects of a high price environment
Factors Affecting Crude Prices on NYMEX
Year in Review - Price Fluctuations
Unforeseen Events, Geopolitical Factors
Supply Constraints OPEC Non-OPEC Sustainable spare capacity dropped under 2% Iraq: creaking infrastructure and sabotage Venezuela: quality and quantity declining Non-OPEC Reserves declining faster in mature giant fields Conservative hike in E+P budgets despite prices FSU output taken for granted Strikes in Norway, Nigeria
Supply Side Factors
Effects of Supply Constraints Accentuated impact of geopolitical tensions Futures prices lifted on long-term supply concerns Greater speculative influence on prices Increased volatility and unpredictability Feedback loop encouraging more investment in oil Without worldwide recession, prices kept higher
Agenda Supply constraints Effects of limited supply Increased demand Effects of growth of demand Higher prices Effects of a high price environment
Increased Demand Asia US Globalization is energy-intensive Asian demand is unexpectedly strong State subsidies are a catalyst for runaway demand Precursor for strategic stockpiling US Global economic recovery led by the US Difficulties meeting environmental regulations Insufficient refining capacity Conversion and cracking capacity maxed out
Prompt Crack Spreads versus Dubai: PFC
Demand Side Factors
Effects of Increased Oil Demand in Asia High refining margins Higher tanker charter prices Growing reliance on Middle East, W. African crudes Increased competition for Russian oil Dependence growing on coal, nuclear power Power and water shortages to dent demand
Agenda Supply constraints Effects of limited supply Increased demand Effects of growth of demand Higher prices Effects of a high price environment
Higher Prices - A Shock? In previous oil shocks, prices tripled Crude sales as share of global GDP have dropped Previous spikes caused by supply dislocations High prices are not “shocking” the global economy But there are negative impacts on oil trading And the market expects prices high for some time
Forward Curve: Paradigm Shift?
Effects of Higher Oil Prices Oil producing countries Adjusting to a higher OPEC price band Retain objective to keep oil competitive But global oil production will peak soon Oil consuming countries Energy efficiency increased in the short-term ASEAN+3 pursuing regional stockpiling, alternatives Economic output hampered in the long term Conclusion
Thank you. Tom Giaever-Enger Managing Editor +65 6530 6504 tom_enger@platts.com www.platts.com