outlook for international oil marketoutlook for ... · future supplyfuture supply--demand balance...

426th Forum on Research Works on July 25, 2017

Outlook for International Oil MarketOutlook for International Oil MarketOutlook for International Oil MarketOutlook for International Oil Market

The Institute of Energy Economics, Japan

Tetsuo MorikawaSenior Researcher, Oil Group, Fossil Fuels & Electric Power Industry Unit

IEEJ：September 2017 © IEEJ2017

Points of the reportPoints of the report

Although OPEC and non-OPEC oil producing countries have extended their g gjoint production cut, production increase in U.S. and other countries will offset most of the production cut’s effect. As oil demand remains solid, the possible further extension of the production cut may prompt oil supply to be balanced with demand. If the joint production cut fails to be extended further, crude oil prices will weaken in the second half of 2018.

A th l b l i fi th i t f E d U S liti l As the global economy remains firm, the impact of European and U.S. political risks and Middle Eastern geopolitical risks on crude oil prices may be limited.

U d ti th t h l d d d f d t l Under an assumption that such supply and demand fundamentals, macroeconomic conditions and political and geopolitical risks will remain unchanged, Brent price will average $45-50/bbl in the second half of 2017 and $50 55/bbl in 2018$50-55/bbl in 2018.

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Oil demandOil demandDemand Changes (year on year)

3mb/d

Oth120 Othersmb/d

2

3 Others

Middle East100

120 Others

Middle East

1

Other Asia

China60

80 Other Asia

China

0

OECD Asia Oceania

OECD Europe20

40 OECD Asia Oceania

OECD Europe

‐1 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

OECD Americas01Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q

2014 2015 2016 2017

OECD Americas

Oil demand in 2Q 2017 increased by 1.5 mb/d or 1.6% y/y to 97.4 mb/d.

Source: IEA2014 2015 2016 20172014 2015 2016 2017

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017 Although demand growth decelerated in response to increasing price, demand was

relatively solid. 2


Oil productionOil productionProduction Changes (year on year)

OPECmb/d OPECmb/d

100

120OPEC

Others

Africa

mb/d

3

4

5OPEC

Others

Africa

/

60

80 Latin America

China 1

2

3

Latin America

China

20

40Former Soviet UnionOECD Asia Oceania

‐1

0 Former Soviet UnionOECD Asia Oceania

0

20

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q

OECD Europe

OECD Americas‐3

‐2

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q

OECD Europe

OECD Americas

Production in 2Q 2017 increased by 800,000 b/d or 0.8% y/y to 96.8 mb/d.Source: IEA

2014 2015 2016 2017 2014 2015 2016 2017

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017 Production growth decelerated due to the joint production cut by OPEC and non-

OPEC oil producing countries.3


OPEC: Uneasy OPEC: Uneasy production expansion by production expansion by Nigeria and LibyaNigeria and Libyag yg y

Crude oil production Change (year on year)

Equatorialmb/d

3 V lmb/d

30

35

40 Equatorial GuineaVenezuela

UAE 2

3 Venezuela

UAE

Saudi Arabia

Qatar

20

25

30 Saudi Arabia

Qatar

Nigeria1

Qatar

Nigeria

Libya

Kuwait

10

15 Libya

Kuwait

Iraq

0 1 4 7 10 1 4 7 10 1 4 7 10 1 4 6

Kuwait

Iraq

Iran

Gabon

0

5

1 4 7 10 1 4 7 10 1 4 7 10 1 4 6

Iraq

Iran

Gabon

‐1 2014 2015 2016 2017

Gabon

Equador

Angola

Algeria

Source: IEA2014 2015 2016 2017 ‐2

g

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017 The rate of compliance with the coordinated production cut fell to 78% in June. Production expansion by Nigeria and Libya push up overall OPEC production. 4


Middle East Situation: Attention must be paid Middle East Situation: Attention must be paid to supply disruption risksto supply disruption riskspp y ppp y p

Qatar’s loss of diplomatic ties with other Gulf countries,

Correlation diagram involving Qatar米国で対カタル

ネガティブキャンペーン湾岸諸国は「テロ」組織と認定 other Gulf countries,

Saudi Arabia’s confrontation with Iran, progress in efforts to

l th I l i St t

イスラエル

民主防衛財団

（米親ユダヤ・ネオコン系シンクタンク）

ムスリム同胞団

アラブ有志連合軍

攻撃

同盟支援？ヒズブッラー

関係フーシー派

対立

ハマース

repel the Islamic State and a likely spread of terrorism indicate a fluid situation in the Middle

米国

ン系シンクタンク）

イラン対話

支援支援

支援

攻撃

対立

対立 UAE協力？

同盟テロとの戦い

ロビー活動

situation in the Middle East.

Particularly, the promotion of

サウジアラビア

イエメン

イスラーム国

モルディブ

外交関係

ガス田共有対立アル=カーイダ

同盟・基地・仲介トランプ大統領は

カタル批判

支援???資金の流れ p

Mohammad bin Salman to crown prince could lead Saudi diplomacy to become more radical

エジプト

バハレーン

モーリタニア

イスラーム国

カタル

コモロ

外交関係断絶・格下げ

シャーム解放委員会

「テロ」組織

資金の流れ

UAE反同胞団

同盟支援

ニジェール

仲介

become more radical.

クウェートオマーンモロッコロシアトルコ

UAE（リビア東部政府）ヨルダン

仲介役

反カタル陣営

テロ」組織

セネガル

ジブチチャドエリトリア

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5Source: Middle East Research Center, IEEJ


U.S.: Shale oil facing low oil prices againU.S.: Shale oil facing low oil prices againProduction and rig count Shale oil productivity

1800 12

Production (mb/d) Number of rigs1,600 Production per well (b/d)

1200

1400

1600

8

10

1,000

1,200

1,400

600

800

1000

1200

4

6

8

400

600

800

0

200

400

600

0

2

4

‐

200

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 8

2014 2015 2016 20170 0 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7

2014 2015 2016 2017

Shale Conventional Number of rigs

2014 2015 2016 2017

Bakken Eagle Ford Haynesville Marcellus

Niabrara Permian Utica Average

U.S. crude oil production recovered to 9.08 mb/d in April 2017.

Source: EIA, Baker Hughes

g

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The EIA forecasts U.S. production in 2018 as 9.9 mb/d. However, the rig count and shale oil productivity may hit the ceiling.


U.S.: Demand lacking strengthU.S.: Demand lacking strengthDemand by product New vehicle sales

25,0001,000 b/d

1,800

1,000 vehicles

20,000

1 200

1,400

1,600

1,800

10,000

15,000

600

800

1,000

1,200

0

5,000

0

200

400

600

01 4 7 10 1 4 7 10 1 4 7 10 1 4

2014 2015 2016 2017

LPG Petrochemical Gasoline Jet Gas oil Fuel oil Others

0 1 4 7 10 1 4 7 10 1 4 7 10 1 4 5

2014 2015 2016 2017

Passenger vehicle SUV/Pick Up

U.S. oil demand in the first quarter of 2017 increased by 350,000 b/d or 0.6% y/y

Sources: EIA, Motor Intelligence

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to 19.48 mb/d. Gasoline demand in the driving season has been declining y/y.


China: Robust demand amid slowing growthChina: Robust demand amid slowing growthDemand by product Production and operating oil-drilling rigs

140001,000b/d

1600

1,000b/d

10000

12000

14000

1200

1400

1600

6000

8000

600

800

1000

2000

4000

200

400

600

0 1 4 7 10 1 4 7 10 1 4 7 10 1 4

2014 2015 2016 2017

01 4 7 10 1 4 7 10 1 4 7 10 1 4

2014 2015 2016 2017

LPG G li K G il F l il Oth

Source: APEC Source: JODI

LPG Gasoline Kerosene Diesel Fuel Oil Other products LPG Gasoline Kerosene Gas oil Fuel oil Others

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Chinese oil demand in 1Q 2017 increased by 400,000 b/d or 3% y/y to 12.38 mb/d. Product exports continue an uptrend.


OECD oil inventories: Far from fiveOECD oil inventories: Far from five--year year averageaveragegg

4 700

4,800 mb

4 500

4,600

4,700

4,400

4,500

4,200

4,300

4,000

4,100

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: IEA

2012‐16 range 2016 2012‐16 average 2017

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017 While OECD oil inventories have fallen slightly since the start of the joint

production cut, they are far more than the OPEC target of the 5 year average 9


Macroeconomic conditions: Risks behind Macroeconomic conditions: Risks behind robust growthrobust growthgg

7%

8%Growth

5%

6%

7%

3.1%3.5% 3.6% 3.7% 3.7% 3.7% 3.8%

3%

4%

1%

2%

0%2016 2017 2018 2019 2020 2021 2022

World US EU ASEAN China Japan

Annual global GDP growth will exceed 3% until 2022. The IMF recognizes rising protectionism U S politics monetary easing economic

Source: IMF

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The IMF recognizes rising protectionism, U.S. politics, monetary easing, economic and financial conditions in emerging countries, fiscal conditions in southern Europe and geopolitical factors as risks for the global economy.


Financial marketsFinancial marketsOil and stock prices Oil price and exchange rate

1.370 WTI($/bbl) EUR/USD)22,000 65

WTI($/bbl) Dow 30

1 2

60 20,000

21,000

50

55

60 ($ )

1.2

40

50

$/bb

l

18,000

19,000

40

45

50

1.1

30

40

15 000

16,000

17,000

30

35

1.020

an-1

5ar

-15

ay-1

5Ju

l-15

ep-1

5ov

-15

an-1

6ar

-16

ay-1

6Ju

l-16

ep-1

6ov

-16

an-1

7ar

-17

ay-1

714,000

15,000

20

25

n-15

ar-1

5y-

15ul

-15

p-15

v-15

n-16

ar-1

6y-

16ul

-16

p-16

v-16

n-17

ar-1

7y-

17

Whil t k k t b t k t l i i k ff tSource: FRB

Ja M Ma J Se

No Ja M Ma J Se

No Ja M Ma

Jan

Ma

May Ju Sep

Nov Jan

Ma

May Ju Sep

Nov Jan

Ma

May

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While stock markets are robust, some market players engage in risk-off movements. FRB retains a scenario in which it will raise interest rates twice this year.


Futures marketFutures market

60800,000WTI price（$/bbl）Number of contracts

50400,000

600,000

30

40

0

200,000

20

30

400 000

‐200,000

0

Jan‐16

Feb‐16

Mar‐16

Apr‐16

May‐16

Jun‐16

Jul‐1

6

Aug‐16

Sep‐16

Oct‐16

Nov‐16

Dec‐16

Jan‐17

Feb‐17

Mar‐17

Apr‐17

May‐17

Jun‐17

10‐600,000

‐400,000

Source: CFTC

0‐800,000Non‐comercial net long Commercial net short WTI

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12 Non-commercial net long and commercial net short positions have decreased

since March 2017.

Source: CFTC


Future supplyFuture supply--demand balance outlook demand balance outlook

2

3 Balance (production cut

mb/d

1

0

1 re‐extension)

Balance(no re‐extension)

mb/d

96

98

100 Demand

Supply

‐1

92

94

96 Supply(production cut re‐extension)Suply(no re‐extension)

90

92

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

If the joint production cut is extended again oil supply will be almost balanced with

Source: IEEJ

2014 2015 2016 2017 2018

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13

If the joint production cut is extended again, oil supply will be almost balanced with demand.

If not, oversupply will be seen again in 2018.


International crude oil price trend and shortInternational crude oil price trend and short--term outlookterm outlook

140

$/bbl

US production decrease US production increase

JointStock

100

120 Jointproduction cut

Aramco IPO

Jointproduction cut re‐extension?OPEC meeting

(priority on marekt share)

level

Middle

60

80 OPEC meetingsOPEC (priority on price)

MiddleEast

40

WTI

Brent US mid‐term election

German general

US interest rate increase

0

20

14 14 14 14 14 14 15 15 15 15 15 15 16 16 16 16 16 16 17 17 17 17 17 17 18 18 18 18 18 18

Dubaigelection

rate increase

Iran sanction lifted

Chinesefinancial

market risk

Brent price will average $45-50/bbl in the second half of 2017 and $50-55/bbl in 2018

Jan 1

Mar

May 1

Jul 1

Sep 1

Nov 1

Jan 1

Mar

May 1

Jul 1

Sep 1

Nov 1

Jan 1

Mar

May 1

Jul 1

Sep 1

Nov 1

Jan 1

Mar

May 1

Jul 1

Sep 1

Nov 1

Jan 1

Mar

May 1

Jul 1

Sep 1

Nov 1

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2018. However, attention should be paid to Middle Eastern and financial market risks.


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