WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame 2005 www.oxfordpetroleum.com.

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Presentation transcript:

WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame

Not speculation... Source: CFTC, Nymex

...but structural change Source: Nymex

Key questions Are we running out of oil? Will strong oil demand persist? Will Opec expand capacity? What is the future for oil prices?

Are we running out of oil? No – plenty of oil liquids left to develop But – remaining reserves concentrated in Middle East and FSU Non-Opec production excluding FSU and unconventional oil is already on plateau Non-Opec including FSU/unconventional oil expected to peak around 2010 Middle East Opec will have to supply most of the new oil to meet future demand growth

Problem is not how much oil... billion barrels Cumulative production701 Known oil reserves890 Undiscovered Total (without growth) Reserves growth Total (with reserves growth) Heavy/extra-heavy oil Bitumen/tar sands Total (with unconventional) 2560 – 4003 Natural gas liquids ~200 Oil liquids yet-to-be produced Oil shales ~14,000 Source: USGS, Campbell & Laherrere

... but where it is Source: USGS

Growing supply gap... Source: PFC Energy

... to be filled by Opec? Source: IEA, World Energy Outlook, 2004

Will strong demand persist? Recent acceleration in global oil demand Huge potential of developing economies But are high growth rates sustainable? –limits on carbon emissions –supply security issues –who will provide the extra capacity?

Accelerating demand Source: IEA, Argus Fundamentals

Following the same path? Source: IEA, World Energy Outlook, 2004

Sustainable growth? Source: BPSR, IMF, Opra

Is supply secure? Source: IEA, World Energy Outlook, 2004

Will Opec expand capacity? Higher prices or bigger market share? Low cost reserves favour bigger market share But market power favours higher oil prices

Price or market share? Source: DeGolyer & MacNaughton, Opec, BPSR, Argus Fundamentals

Low cost reserves = bigger share... Known oil reserves Opec Non-Opec

...but market power = higher prices Source: IEA, World Energy Outlook, 2004, Opra

What is the future for oil prices? Opec policies now favour high oil prices No alternative to Middle East oil reserves Oil demand will be constrained by: –high oil prices –carbon emission limits –supply security concerns Iraq remains a wild card

WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame

Downstream capacity shortage? Rising refinery utilisation rates Widening quality differentials Surging tanker rates

Rising utilisation rates Source: BPSR, Argus Fundamentals

Widening quality differentials Source: Argus Fundamentals

Surging tanker rates Source: Argus Fundamentals