Post-War Oil Markets: Everything Is OK, Right? Dennis Eklof - Executive Managing Director, Global Energy Bruce Cavella – Senior Economist June 12, 2003
Copyright 2003 Global Insight, Inc. 2 Global Oil Markets 2003½ : Where Do We Stand? Little damage to Iraqi oil infrastructure from war. Demand Growth: SARS, weak economic environment: wait until next year. Non-OPEC: The taps are WIDE OPEN. OPEC: The taps are (nearly) WIDE OPEN. Prices: Prices fell prior to and during war, but bombings in Riyadh, low inventories, and slow Iraqi recovery have pushed up prices. The Outlook: Low inventories, slow Iraqi return, natural gas worries in the United States, and production adjustments by OPEC will support prices in coming months.
Copyright 2003 Global Insight, Inc. 3 Global Oil Markets 2003½ : Where Have We Been?
Copyright 2003 Global Insight, Inc. 4 Global Oil Markets 2003½ : Where Do We Stand? Demand Growth Stronger in 2004
Copyright 2003 Global Insight, Inc. 5 Natural Gas Prices: Supporting Limited Oil Demand Growth Current US short to mid-term gas/oil switching capacity about 0.65 to 0.70 mbd At least two thirds has already switched, a major factor contributing 0.5 mbd to recent growth in resid and distillate demand High gas prices almost certain to continue through 1H2004 so some additional switching possible Important long-term issue is whether higher long- term gas prices will provide oil demand growth or merely reduced industrial activity and import substitution
Copyright 2003 Global Insight, Inc. 6 US Natural Gas Prices: Continued Upward Trend for Now
Copyright 2003 Global Insight, Inc. 7 Global Oil Markets 2003½ : Where Do We Stand? OECD Commercial Stocks and Forward Supply
Copyright 2003 Global Insight, Inc. 8 Global Oil Markets 2003½ : Where Do We Stand? Non-OPEC Production Growing Non-OPEC production growing by nearly 1 million b/d this year. Growth in non-OPEC production meets all of expected demand growth in Non-OPEC production increases by nearly 1 million b/d again in Little room for OPEC-10 to expand production in 2004 particularly with return of Iraqi oil.
Copyright 2003 Global Insight, Inc. 9 Non-OPEC Production Growth
Copyright 2003 Global Insight, Inc. 10 Iraqi Oil Production
Copyright 2003 Global Insight, Inc. 11 Global Oil Markets 2003½ : Where Does OPEC Stand?
Copyright 2003 Global Insight, Inc. 12 Global Oil Markets 2003½ : OPEC Continues To Manage the Market and Prices
Copyright 2003 Global Insight, Inc. 13 OPEC Basket Price
Copyright 2003 Global Insight, Inc. 14 “OPEC Taps Are Open And Oil Is On The Way!” – March teleconference. Saudi Arabia chartered ships to bring extra crude to market in mid- to late-January and again in late March. Six-week sailing time to the U.S. meant that a wave of oil was on the way.
Copyright 2003 Global Insight, Inc. 15 Where Is the Oil? Oil may be “slow-steaming”. Oil may have been diverted to Caribbean storage or to other destinations.
Copyright 2003 Global Insight, Inc. 16 Global Oil Markets 2003½ : Where Do We Stand? U.S. Commercial Stocks and Forward Supply
Copyright 2003 Global Insight, Inc. 17 Near-Term Price Scenarios