1. Crude oil markets: outlook to 2020
ENERGY
Oil Market Services
Crude oil markets: outlook to 2020
21 April 2015
Aaron Brady, Senior Director,
James Fallon, Senior Director,

2. Base case outlook: Two oil price phases to 2020
Two price phases to 2020
© 2015 IHS:
Source: IHS
Supply surplus—
Oil prices under pressure
Weaker supply gains—
Demand growth pushes prices up
PHASE ONE: 2015–2016
PHASE TWO: 2017–2020

3. Crude oil price outlook Annual average price in nominal US$ per barrel

4. Geopolitical factors kept ~3 MMb/d oil off the market which held off price declines – until mid 2015
Through mid-2015, oil off the market countered-balanced the rise in supply from North America.
Libyan factions reached agreements which returned 500,000 b/d to the market quickly, causing the first downdraft in oil prices.
Baghdad and Erbil reached agreement in early December which will allow 400,000 b/d to flow from KRG in 2015.
Markets “suddenly” realized the structural market imbalance.

5. 1st Tipping Point: return of Libyan production brought fundamentals back into focus
Contango (upward sloping forward curve) indicates loose market
Backwardation (downward sloping forward curve) indicates tight market

6. 2nd Tipping Point: Saudi Arabia stepped back from being the market balancer to guard market share
OPEC’s roll-over of production reflects a willingness to incur short-term pain to let market find the weak producers.

7. US crude production faces increasing headwinds, leading to month-to-month production declines in 2H15

8. There is a wide range of production economics among and within onshore US plays
Volume needed to replace 2013 onshore base decline
$60-$70/bbl
$40-$50/bbl
$30-$40/bbl
In 2013, the US needed 1.45 MMb/d of new production to cover base decline, all of which could have come from wells breaking even at $60-$70/bbl

9. World economic and oil demand growth

10. Liquids demand growth approaches 1. 3-1
Liquids demand growth approaches MMb/d, mostly due to improving economic conditions

11. OPEC crude oil production
Other OPEC members
Libya
UAE

12. Saudi Arabia is a baseload producer, not a “swing” producer
Tight oil

13. United States crude oil production outlook Annual average production volume
Tight oil

14. Full cycle Brent $60/barrel breakeven would put a number of key producers at risk of cancelling projects
High range
Average
breakeven
$60/bbl breakeven
Low range

15. Non-OPEC crude oil production outlook, excluding USA
CIS
Commonwealth of Independent States
Tight oil

16. Trends in upstream oil field development costs Index illustrates change in cost of developing a global portfolio of upstream assets
In 2020 costs are still 7% below 2014 level
Tight oil

17. Annual change in world oil demand and supply

18. Long term real Brent prices expected to revert to ~$110, required to support marginal supply development

19. Wedge of ~50 million bbl/d new oil production by 2040 needed to offset declines and meet demand growth

20. Long term Brent-WTI spread reflects export parity economics (US crude trade liberalization)

21. The case for a wider WTI-Brent spread: refining constraints for light tight oil processing
($2 – 4/Barrel)
($8 – 18+/Barrel)
($1 – 2/Barrel)
Tier 1 – Displace light
sweet crude imports
($0.5 – 1.0/Barrel)

22. North America crude price relationships