analysis of the oil price outlook - clkmedia.arpel2011.clk.com.uy/conf2015/ppt/28.pdf · analysis...

Analysis of the oil price outlook Ann-Louise Hittle, Head of Macro Oils, Wood Mackenzie, ARPEL April 8 2015

Trusted commercial intelligencewww.woodmac.com


2

Global demand: growth was weaker than expected in 2 014 helping to create lower prices but we expect some recovery in 2015

Annual growth in global oil demand (mil b/d)

(1,0)

(0,5)

-

0,5

1,0

1,5

2,0

2011 2012 2013 2014 2015 2016

mill

ion

b/d

China US Europe Japan Other Global

forecast

Source: IEA, EIA (history), Wood Mackenzie (forecast)


3

Companies are slashing 2015 capital spend: relative to 2014 budgets, US$126 billion (24%) has been cut from ups tream budgets

Wood Mackenzie Corporate Service coverage: year-on- year (2014-2015) change in capital budgets (%)

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Kos

mos

Woo

dsid

e

PT

TE

P

Sun

cor

Tul

low

She

ll

Tot

al

Sta

toil

Sou

thw

este

rn

Exx

onM

obil

LUK

OIL BP

Che

vron

Hes

s

Eni

Enc

ana

Dev

on

Pem

ex

CN

RL

Che

sape

ake

Pet

robr

as

Fre

epor

t-M

cMoR

an

Lund

in

Pre

mie

r

OM

V

BG

Con

ocoP

hilli

ps

Mur

phy

Occ

iden

tal

Con

tinen

tal

CN

OO

C L

td

Mar

atho

n

Can

adia

n O

il S

ands

EO

G

Hus

ky

New

field

Nob

le E

nerg

y

Pio

neer

Ran

ge

Hus

ky

Cen

ovus

Pac

ific

Rub

iale

s

Den

bury

BH

P B

illito

n

San

tos

Apa

che

Oil

Sea

rch

Cal

iforn

ia R

esou

rces

Yea

r-on

-yea

r (2

014-

2015

) cha

nge

in u

pstr

eam

cap

ital

bu

dget

s (%

)

Source: Wood Mackenzie, company reports

Midpoints are used for companies that disclose guidance ranges. Upstream exploration and development capital budgets are used, with other expenditure items (e.g., downstream and M&A) excluded where possible.


4

Despite oil price declines starting in July 2014, U S oil drilling reached a peak during the fourth quarter of 2014, b efore collapsing

US oil drilling by rig type with US crude (WTI) pri ces

While drilling levels can react quickly to price signals, momentum typically delays the impact on a 6-9 month lag from rig reductions to production impact, dependant on completion rate

� Vertical oil rigs have declined from 520 in June 2014 to 207 by March 2015 and we expect an additional 15-20% reduction

� In November 2014, horizontal oil rigs surpassed 1,100 for the first time.

» We expect horizontal drilling to decline substantially, but reductions will be minimal in the core US tight oil plays (Eagle Ford, Bakken, and Permian)

� Several factor are expected to limit the impact of rig reductions on production, including:

» Less efficient rigs are laid down first, speeding up efficiency gains.

» Remaining rigs move to core areas with superior well results.

» Companies reduce other discretionary spending to concentrate capital on development activities

$-

$20

$40

$60

$80

$100

$120

$140

0

200

400

600

800

1,000

1,200

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15

$/bb

l -W

TI

Oil

Rig

s

Vertical Horizontal WTI

Source: Wood Mackenzie, Baker Hughes

Strategy with substance© Wood Mackenzie

5

Libya: recent gains now largely lost as El Sharara r emains shut-in and Es Sider and Ras Lanuf terminals disrupted

Average production by blend - 2013 and 2014

0

200

400

600

800

1.000

1.200

1.400

1.600

Janu

ary

Feb

ruar

yM

arch

Apr

ilM

ayJu

neJu

lyA

ugus

tS

epte

mbe

rO

ctob

erN

ovem

ber

Dec

embe

rJa

nuar

yF

ebru

ary

Mar

chA

pril

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

rD

ecem

ber

'000

b/d

Amna El Sharara Es Sider

Sarir Elephant Sirtica

Bu Attifel Brega Bouri

Al Jurf Mellitah Zueitina

2013 2014Source: Wood Mackenzie


6

US refinery crude oil runs heading towards all-time high this summer

Storage draws later this year when combined with slowing US crude oil production growth

United States refinery runs

� Wood Mackenzie’s Product Markets Short-term Service is forecasting US refining runs to rise 1.5 million b/d from a seasonal low in February to 17 million b/d in July.

� Wood Mackenzie expect a similar seasonal pick up in global crude oil runs to support Brent and WTI prices during the 3rd quarter of 2015.


7

Rebalancing the market longer term depends on deman d growth in the non-OECD. Increases are expected despite contin ued declines in oil intensity

Global Oil Demand by Region Regional Oil Intensities

Source: IEA; Forecast: Wood Mackenzie


8

The oil market is exposed to a multitude of competi ng forces

Uncertainties

Strength of oil demand growth

Global economic growth

Reaction of tight oil to low oil price

Low oil price delay of upstream developments

Alternative fuels

Lifting US crude oil export ban

US refining investments to process tight oil

Upstream investment terms

Saudi oil policy

Oil supply/demand balance

Iranian sanctions

Middle East stability

Light/heavy differentials

Cost reduction in conventional upstream projects


9

Disclaimer

� This report has been prepared by Wood Mackenzie Limited. The report is intended solely for the benefit of attendees, its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.

� The information upon which this report comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

Strictly Private & Confidential


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analysis of the oil price outlook - clkmedia.arpel2011.clk.com.uy/conf2015/ppt/28.pdf · analysis...

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