Ian taylor's presentation slides from the 2010 World National Oil Companies Congress

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Ian taylor's presentation slides from the 2010 World National Oil Companies Congress that took place in June in London.

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Ian taylor's presentation slides from the 2010 World National Oil Companies Congress

  1. 1. Page 1 Latest Main Market Economic Data February 2010 NOCs and the new energy dynamic: A trader’s perspective Presented by Ian Taylor World National Oil Companies Congress, London 24th June 2010
  2. 2. Page 2 Economic Growth Economic growth remains the major determinant of oil demand Intense recession in 2008/2009 led to oil demand falling for the first time since the early 1980s However economic growth has picked up and so too has oil demand. There has however been a marked shift in the share of oil demand accounted for by developing countries. From around 35% of total demand in 2000 by 2015 non OECD countries are expected to account for more than half of the total -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 1980 1985 1990 1995 2000 2005 2010 2015 -1% 0% 1% 2% 3% 4% 5% 6% Oil Demand Growth GDP (% Change) Millionb/d Global Economic Activity & Oil Demand Growth %ChangePerAnnun 30% 35% 40% 45% 50% 55% 60% 65% 70% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 OECD Non-OECD % Share Of Global Oil Demand
  3. 3. Page 3 Oil Demand In N. America oil demand fell very sharply in the recession and is not expected to get back to 2000 levels by 2015. In Europe and Japan demand is expected to continue to decline. In Europe we expect demand to be nearly 2 million b/d below the 2005 level. In marked contrast significant demand growth is expected to be maintained in Asia and the Middle East. By 2015 we expect these two areas combined to have demand more than 12 million b/d higher than in 2000. 2000 2005 2010 2015 Regional Demand North America 23.78 25.21 23.30 23.54 S / C America 5.27 5.68 6.46 7.04 Europe 15.94 16.40 15.07 14.52 FSU 3.78 3.93 4.05 4.19 Africa 2.46 2.94 3.24 3.74 Middle East 4.89 6.06 7.34 8.82 Asia 21.06 24.35 27.02 29.62 World 77.18 84.57 86.48 91.47 Product Demand LPG 7.41 8.15 8.62 9.48 Naphtha 5.03 5.76 6.09 6.24 Gasoline 19.63 21.33 22.29 23.18 Jet / Kero 6.31 6.52 6.32 6.90 Gas / Diesel 20.07 23.14 24.71 26.86 Residual Fuel Oil 10.28 10.02 8.55 8.50 Other Products 8.45 9.65 9.90 10.31 Total 77.18 84.57 86.48 91.47
  4. 4. Page 4 Fuel Oil Demand – A Structural Shift? Demand for residual fuel oil was hit very hard by the recession. Part of the decline was accounted for by bunkers as international trade was reduced. The recession also hurt electricity demand. However it seems also that the very weak relative price of natural gas has reinvigorated inter fuel competition. 7.5 8.0 8.5 9.0 9.5 10.0 10.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Global Fuel Oil Demand Oil and Gas Price Competition 0 2 4 6 8 10 12 14 16 18 20 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 $/MMBTU Nymex WTI Nymex Nat Gas
  5. 5. Page 5 Coal: Preferred Asian Fuel In Power Generation 0 500 1,000 1,500 2,000 2,500 3,000 3,500 China Asia (Ex CN) Middle East Africa FSU Europe S/C America N America 2000 2008 2015 Regional Steam Coal Demand (Mln Tons) 0 50 100 150 200 250 300 350 400 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Projected Annual Change In Steam Coal Demand (Including China) Demand(MlnTons) Coal remains the cheapest energy source for power generation despite the environmental issues. Chinese coal demand dominates the world total and is expected to continue to sustain growth in demand through the next five years Emissions are the major concern that this raises.
  6. 6. Page 6 USA Gasoline Demand Gasoline demand in the USA grew inexorably for 15 years until 2008 when it fell by around 250 k bd. There is currently little sign of recovery. In part this reduction has been caused by the recession but in part also appears to have been caused by changes in habits. US drivers have been driving less and they have shifted their preferences to more fuel efficient vehicles. The market and high prices would appear to work! This loss of demand has been exacerbated by increased sue of ethanol. 2,850 2,875 2,900 2,925 2,950 2,975 3,000 3,025 2005 2006 2007 2008 2009 2010* USA: Vehicle Miles Travelled (Billion Miles) *2010 = Extrapolated From YTD Data 8.0 8.2 8.4 8.6 8.8 9.0 9.2 9.4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 US Gasoline Demand (Mln b/d)
  7. 7. Page 7 China: Cars and Gasoline Demand 0 20 40 60 80 100 120 '90 '95 '00 '05 '10 '15 '90 '95 '00 '05 '10 '15 0 10 20 30 40 50 60 China: Gasoline Use & Car Ownership GasolineDemand/Car(bbls) CarFleet(MlnUnits) Mln b/d 1990 1995 2000 2005 2010 2015 LPG 0.08 0.24 0.43 0.65 0.70 0.76 Naphtha 0.22 0.33 0.50 0.71 1.11 1.31 Gasoline 0.44 0.68 0.82 1.13 1.66 2.21 Jet / Kero 0.07 0.11 0.19 0.25 0.36 0.46 Gas / Diesel 0.55 0.88 1.38 2.24 3.12 3.85 Fuel Oil 0.62 0.68 0.67 0.78 0.59 0.49 Others 0.28 0.36 0.57 0.93 1.42 1.77 Total 2.25 3.28 4.56 6.69 8.96 10.85 China: Oil Demand Developments The growth in China’s economy has been a large driver of oil demand growth in the past decade. The car fleet has increased from less than 3 million to over 50 million this year and forecast to increase to around 100 million by 2015. However this is not giving the growth in demand that some expected as use of each car has fallen dramatically. Diesel demand is the other major element of growth and can be expected to continue to grow strongly as long as the economy continues to expand.
  8. 8. Page 8 Non OPEC Oil Production Non OPEC crude production reached a temporary peak in 2004 but last year growth was again evident. Further limited growth is expected in the next few years although the recent problems in the US Gulf may result in some slowdown in development. The contribution of non crude supplies has been growing and is forecast to continue to grow. Biofuels are forecast to increase to close to 4 million b/d by 2015. Developments in Non OPEC Supply 42,000 43,000 44,000 45,000 46,000 47,000 48,000 49,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 000b/d Development in Non Crude Supplies 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 millionb/d Biofuels/GTL/CTL OPEC NGL & Condensate Processing Gains
  9. 9. Page 9 000 b/d Jul-08 Jan-09 May-10 Jan-09 May-10 vs Jul 08 vs Jan 09 Algeria 1400 1280 1265 -120 -15 Angola 1920 1725 1830 -195 105 Ecuador 500 505 475 5 -30 Iran 3925 3725 3745 -200 20 Iraq 2450 2450 2415 0 -35 Kuwait 2575 2325 2205 -250 -120 Libya 1670 1600 1550 -70 -50 Nigeria 2045 1875 2246 -170 371 Qatar 860 770 815 -90 45 Saudi Arabia 9700 8000 8215 -1700 215 UAE 2600 2250 2305 -350 55 Venezuela 2365 2250 2235 -115 -15 Total 32010 28755 29301 -3255 546 OPEC Production by Member Country OPEC Crude Oil Production In the period 2004 through 2008 the level of OPEC’s spare production capacity fell to very low levels. It can be argued that this was the principle factor that allowed oil prices to increase to over $140/bbl. Spare capacity is now significant and is forecast to remain so. There have been large additions to production capacity particularly in Saudi Arabia. Also OPEC cut production by more than 3 million b/d to defend prices when they dropped so sharply at the end of 2008. Development in OPEC Spare Capacity 15 20 25 30 35 40 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 millionb/d Production Total Capacity
  10. 10. Page 10 Refinery Capacity – Moving East The growth in oil demand in developing countries, particularly in Asia, has resulted in a large increase in refining capacity largely to meet this demand. Moreover the new capacity has been used at high utilisation rates. By contrast in the Atlantic Basin refinery throughput has fallen and a number of refineries have been closed. This has shifted crude oil supply patterns and increasing volumes of crude have been moving from the Atlantic Basin into Asia. This trend is forecast to continue in the next five years. Development in Regional Refinery Capacity 0 10 20 30 40 50 60 2000 2010 millionb/d Atlantic Basin Middle East Asia million b/d 2000 2010 Atlantic Basin Production 38.50 43.04 Refinery Throughput 45.95 43.52 Net Balance -7.45 -0.48 Middle East Production 21.30 22.25 Refinery Throughput 5.43 6.10 Net Balance 15.87 16.15 Asia Production 7.80 8.09 Refinery Throughput 18.08 24.20 Net Balance -10.28 -16.11 Changes in Crude Flows
  11. 11. Page 11 Oil Price Volatility The past few years saw dramatic price swings and very high volatility in prices. Hedging of physical inventory became a necessity for companies that could not survive this level of volatility. In the past nine months price volatility has diminished and for a great deal of that time prices have traded between $70/bbl and $85/bbl. Development in Front Month IPE Brent Prices 0 20 40 60 80 100 120 140 160 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 $/bbl Development in Front Month IPE Brent Prices 60 65 70 75 80 85 90 2/11/200916/11/200930/11/200914/12/200928/12/200911/1/201025/1/2010 8/2/201022/2/2010 8/3/201022/3/2010 5/4/201019/4/2010 3/5/201017/5/201031/5/201014/6/2010 $/bbl
  12. 12. Page 12 Investment in Commodities 150 200 250 300 350 400 450 500 550 600 650 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 CRB Commodity Index -10 -5 0 5 10 15 20 25 Q1-05 Q2 Q3 Q4 Q1-06 Q2 Q3 Q4 Q1-07 Q2 Q3 Q4 Q1-08 Q2 Q3 Q4 Q1-09 Q2 Q3 Q4 Q1-10 A&M Estimated Commodity Inflows ($Bn) (Quarterly Inflows Into Indices, ETP, MTNs) From early in the decade there was a sea change in the investment community’s attitude towards commodities. Investment funds began to flow into commodities, including oil, and this flow became a major market factor. Investing in the futures markets is very easy. The flow disappeared and even reversed in the second half of 2008 but has since re emerged on the long side as the investment funds see the world economic picture improving and expect oil prices to reflect this. Over the medium term we remain of the view that supply and demand fundamentals will shape the oil market but in the short term the impact of money flows can outweigh the fundamentals.
  13. 13. Page 13 Background • The very high prices and price volatility seen in 2008, the emergence of hedge funds investing in commodities in general (and energy in particular) and the problems seen in the world financial system have combined to lead calls for greater regulation of derivative markets. This is despite the fact that energy exchanges have over time performed well in our view • The new regulations will almost certainly result in greater disclosure requirements, more business being required to be cleared and potentially reduced liquidity. • The one certain result is higher costs of trading which will potentially increase the cost of delivering physical oil to market. Trading, Hedging and Regulation
  14. 14. Page 14 Vitol’s Perspective • As physical traders Vitol uses derivatives markets to hedge its flat price exposure and needs to continue to do so. Our major concern is that we are able to continue to hedge all our physical cargoes and therefore provide the best and most comprehensive service to end users and consumers. • Vitol will do whatever the regulators require and provide input where possible but is concerned by the resulting increased cost burden. NOC’s Perspective • They don’t trade /hedge and so the regulatory changes should have little or no direct impact • NOCs have become much more knowledgeable of trading markets over the past 10 years. Transparency of prices for both physical and paper products is now total across the world. • Physical traders are expecting thin margins and more competitive markets. Trading, Hedging and Regulation

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