oil price outlook - bbva research · production declined to 2.37m bbl/d—largest mom decline in a...
TRANSCRIPT
Oil Price Outlook
BBVA Research USA
Houston, TX June 2016
2
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Disclaimer
As expected
• U.S. production continues to adjust
• Further bankruptcies and declining investment
• Oversupply has eased
• Sustained demand growth, particularly in emerging markets
Major surprises
• Output disruptions in Nigeria, Libya and Canada have helped to mitigate oversupply
• Dollar volatility as markets reassessed expectations of interest rates hikes
• The U.S. rig count increased for three consecutive weeks, feeding concerns that the price rally
happened too soon to clear oversupply entirely
Upward bias in the short-term, but caution going forward
• Short-run risks persist such as financial volatility, further supply disruptions, and negative
surprises to the global outlook
• Although declining, oversupply conditions remain
• Inventories are still at historically high levels
• A sustained prices rebound could halt further cuts in U.S. production
4
Oil prices in 2016
Crude oil prices $ per barrel
Prices have moved up by about 80% since last bottom
Source: Haver Analytics
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
0
20
40
60
80
100
120
140
160
Brent
WTI
Brent $49.17 as of June 17, 2016
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
U.S. retail gasoline prices $/gallon
1
3
5
7
9
11
13
15
U.S. natural gas, Henry Hub $/gallon
5
Market balance
Supply & demand balance, and oil prices
The market is gearing towards rebalancing at the expense of some
producers and solid demand, mainly in non-OECD countries
Source: Haver Analytics
-400
-200
0
200
400
600
800
1000
0
20
40
60
80
100
120
140
-4
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016
Oil Supply/Demand Balance: Stock Change Needed To Balance(Mil b/d) - Seasonal Adjustment, All
European Free Market Price: Brent Crude Oil ($/Barrel, rhs)
050
100150200250300350400450500
OECD Non-OECD(excluding China
& India)
China India
Net change: +1.2 million bbl/d
Net change: +1.7 million bbl/d
Source: Haver Analytics
Wellhead production change by country
April 2015 to April 2016. Thousand bbl/d
Demand change by country
April 2015 to April 2016. Thousand bbl/d
6
Short-term volatility Supply disruptions have contributed to the acceleration of market rebalancing…
Event Description Price Bias
Canadian wildfires At peak, wildfires cut 1.5 million bbl/d of
production capacity, but blazes are now 82%
contained.
Economic and political
conflict in Venezuela
60-day state of emergency imposed.
Production declined to 2.37M bbl/d—largest
MoM decline in a decade.
Libya supply disruption
ends
Rival Libyan oil factions strike deal in Vienna
allowing exports from East Libya to resume.
Slowing output in Iraq Power outages, bad weather in Basra Gulf and
Kirkuk crude export cut contribute to 50K bbl/d
rise in average disruptions.
Pipeline attacks in
Nigeria
Pipeline bombings continue in southern
Nigeria, and production drops to 20-yr low of
1.51M bbl/d
June OPEC Meeting OPEC fails to reach oil output deal, but
appoints Nigeria’s Mohammed Barkindo as
new secretary-general.
7
Short-term volatility
Brent spot price $ per barrel
Source: BBVA Research and Haver Analytics
41
42
43
44
45
46
47
48
49
50
51
52
53
54
05/0
8/1
6
05/0
9/1
6
05/1
0/1
6
05/1
1/1
6
05/1
2/1
6
05/1
3/1
6
05/1
4/1
6
05/1
5/1
6
05/1
6/1
6
05/1
7/1
6
05/1
8/1
6
05/1
9/1
6
05/2
0/1
6
05/2
1/1
6
05/2
2/1
6
05/2
3/1
6
05/2
4/1
6
05/2
5/1
6
05/2
6/1
6
05/2
7/1
6
05/2
8/1
6
05/2
9/1
6
05/3
0/1
6
05/3
1/1
6
06/0
1/1
6
06/0
2/1
6
06/0
3/1
6
06/0
4/1
6
06/0
5/1
6
06/0
6/1
6
06/0
7/1
6
06/0
8/1
6
06/0
9/1
6
06/1
0/1
6
06/1
1/1
6
06/1
2/1
6
06/1
3/1
6
06/1
4/1
6
06/1
5/1
6
06/1
6/1
6
Saudi Arabia
reshuffles cabinet,
replacing oil minister
Nigeria: Terrorist
groups attack pipelines
for the third time in a
week..
Average= $49.29
IEA predicts that
inventories will decline by
200K bbl/day in 2H16
Austria: No
agreement on oil
production reached at
OPEC meeting
Iran announces supply
disruptions due to bad
weather and power
outages
Libya: East Libya oil
exports resume
Venezuela: President
Maduro imposes state
of emergency
U.S. crude inventories
decline. China’s oil imports
stay strong. Further attacks
in Nigeria
Stronger
USD
U.S. Rig count
increases for three
consecutive weeks
Brexit polls
narrow
…however, the positive impact on prices has recently diminished
8
Financial markets
Oil prices and U.S. dollar
Oil prices and stock market
Source: Haver Analytics Source: Haver Analytics
25
30
35
40
45
50
55
15000
16000
17000
18000
19000
20000
21000
22000
Feb-16 Mar-16 Apr-16 May-16 Jun-16
Hang Seng (Jul-31-64=100)
Dow Jones (May-26-1896=40.94)
Brent ($/bbl, rhs)
20
25
30
35
40
45
50
55
114
116
118
120
122
124
126
128
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16
Trade-Weighted Exchange Rate, $ (Jan-97=100)
Brent ($/bbl, rhs)20
40
60
80
100
120
140
0
10
20
30
40
50
60
70
80
90
100CBOE Crude Oil Volatility Index, OVX (Index)
Brent ($/bbl, rhs)
Oil prices and volatility index
Improving risk perception on
emerging markets and weaker dollar
compared to early in the year create
a favorable environment for crude
prices
9
Demand
3.3
3.5
3.7
3.9
4.1
4.3
4.5
4.7
9.0
9.5
10.0
10.5
11.0
11.5
12.0
Ja
n-1
2
Apr-
12
Ju
l-1
2
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-1
3
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-1
4
Oct-
14
Ja
n-1
5
Apr-
15
Ju
l-1
5
Oct-
15
Ja
n-1
6
Apr-
16
Oil Product Demand: China (Ths b/d) -Seasonal Adjustment, All
Oil Product Demand: India (Ths b/d) -Seasonal Adjustment, All2 (rhs)
U.S. demand for finished motor gasoline Million bbl/d, seasonally adjusted
Oil product demand Million bbl/d
Demand growth remains solid mainly because of emerging markets
and the U.S.
7.8
8.0
8.2
8.4
8.6
8.8
9.0
9.2
9.4
9.6
Ja
n-1
2
Apr-
12
Ju
l-1
2
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-1
3
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-1
4
Oct-
14
Ja
n-1
5
Apr-
15
Ju
l-1
5
Oct-
15
Ja
n-1
6
Apr-
16
Source: Haver Analytics Source: Haver Analytics
10
Futures
Brent crude futures
$ per barrel
WTI crude futures
$ per barrel
Despite the short-term increase, the forward curve reflects skepticism
about the strength of the recent rally
Source: Bloomberg
30
35
40
45
50
55
1 2 3 4 5 6 7 8 9 10 11 12
Months Ahead
06/17/16
1 month ago
3 months ago
6 months ago
30
35
40
45
50
55
1 2 3 4 5 6 7 8 9 10 11 12
Months Ahead
06/17/16
1 month ago
3 months ago
6 months ago
11
OPEC
Crude oil production Million barrels per day
Change in OPEC production by country Quarterly, thousand barrels per day
Given current price levels and supply disruptions, OPEC has less
incentive to engage in an output deal that helps to boost prices further
-400
-300
-200
-100
0
100
200
300
400
4Q15 1Q16
Indonesia
Venezuela
United Arab Emirates
Saudi Arabia
Qatar
Nigeria
Libya
Kuwait
Iraq
Iran
Ecuador
Angola
Algeria
49
50
51
52
53
54
55
56
57
29
29
30
30
31
31
32
32
33
33
Ju
n-1
3
Aug
-13
Oct-
13
Dec-1
3
Feb-1
4
Apr-
14
Ju
n-1
4
Aug
-14
Oct-
14
Dec-1
4
Feb-1
5
Apr-
15
Ju
n-1
5
Aug
-15
Oct-
15
Dec-1
5
Feb-1
6
Apr-
16
OPEC Crude Non-OPEC
Source: Haver Analytics
12
United States
Total oil production by shale play
Thousand barrels per day
U.S. crude oil production
Million barrels per day
Production continues to decline in line with expectations. The
adjustment differs significantly across regions
0
2
4
6
8
10
12
Texas
North Dakota
U.S. Total
Source: Haver Analytics
0
300
600
900
1200
1500
1800
2100
Th
ou
san
ds
Bakken
Eagle Ford
Haynesville
Marcellus
Niobara
Permian
Utica
13
United States
Crude oil production and oil prices U.S. active rig count and oil prices
However, slight surge in the rig count raises questions about how long
the decline in production can last
30
35
40
45
50
55
380
390
400
410
420
430
440
450
Baker Hughes Active Rig Count: US (Units)
Spot Price: West Texas Intermediate 40 Deg ($/Barrel)
Source: Haver Analytics
0
10
20
30
40
50
60
8500
8600
8700
8800
8900
9000
9100
US Weekly Crude Oil Field Production (Thous. Barrels/Day)
U.S. Weekly Crude Oil Field Production (Thous. Barrels/Day, 4-Week MA)
Spot Price: West Texas Intermediate 40 Deg ($/Barrel)
14
Inventories
Global oil inventories EOP, Million barrels
U.S. stocks of crude oil excluding SPR
EOP, Million barrels
Moreover, high levels of inventories will prevent prices from
rebounding quickly
250
300
350
400
450
500
550
Source: BBVA Research and Haver Analytics
1500
1700
1900
2100
2300
2500
2700
2900
3100
3300
2011 2012 2013 2014 2015 2016
Oil Inventories: OECD (EOP, Mil.Bbl)
Oil Inventories: Non-OECD (EOP, Mil.Bbl)
15
Oil price forecasts Change in our baseline scenario reflects a better outlook in the short-term
but some caution going forward
Crude Oil Price Forecasts* Brent, $ per barrel, avg.
*Forecast may be subject to change.
Source: BBVA Research & Haver Analytics
Crude Oil Price Forecasts* Brent, $ per barrel, avg.
Baseline Upside Downside
2015 52.8 52.8 52.8
2016 46.2 55.3 32.3
2017 55.0 72.6 26.4
2018 58.2 79.6 26.8
2019 59.6 87.1 23.7
2020 59.6 94.6 21.4
0
20
40
60
80
100
120
Ma
r-14
Aug
-14
Ja
n-1
5
Ju
n-1
5
Nov-1
5
Apr-
16
Sep
-16
Fe
b-1
7
Ju
l-1
7
Dec-1
7
Ma
y-1
8
Oct-
18
Ma
r-19
Aug
-19
Ja
n-2
0
Ju
n-2
0
Nov-2
0
Actual Baseline
Upside Downside
16
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