special presentation ‘new/old views on crude oil and ... · transneft's espo trunk crude...

‘New/old views on crude oil and petroleum products storage and trading in the Med market’

for Janaf Conference

22 November 2016

Eugene Lindell, JBC Energy

Special Presentation

Disclaimer

All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements (including those depicted in graphical form) are statements of future expectations that are based on JBC Energy’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things statements expressing JBC Energy’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, “forecast”, “predict”, “think”, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. All forward-looking statements contained in this speech/presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers/audience should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither JBC Energy nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this speech/presentation. Any persons acting on information contained in this presentation does so solely at their own risk. JBC Energy is not responsible for the accuracy of data collected from external sources and will not be held liable for any errors or omissions in facts or analysis contained in this presentation. JBC’s third party sources provide data to JBC on an “as-is” basis and accept no responsibility and disclaim any liability relating to reliance on or use of their data by any party. Data sourced as SuDeP (JBC’s in-house Supply-Demand-Price forecasting model) or JBC Derived Data may be partly based on EIA and various national statistical entities; JODI; the MODS, ADS or MGDS (http://data.iea.org) services developed by the IEA, © OECD/IEA 2016; OPEC; and other industry sources, but the resulting work has been prepared by JBC Energy and does not necessarily reflect the views of the original data providers. To the extent that JBC Energy comments or opines on data obtained from third party sources, these comments or opinions shall be understood as JBC Energy’s own comments or opinions unless a third party is quoted as their source.

Tuesday, 22 November 2016 www.jbcenergy.com Slide 2

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Introduction and Key Points

• Challenging Years: – The market from 2010 to 2014

• Squeeze in medium-sour crude supplies • Libyan outage shakes up light-sweet market, but WAF to the rescue • Refiners compete against Russia, the Middle East and USGC

• Rise of a Buyers’ market: – The market in 2015 and 2016

• Medium-sour oversupply (Iraqi growth then return of Iran) • Light-sweet supplies shake-up • Improved refining prospects

• Oh crystal ball - a look at 2017: – 2016 trends to continue

• Mediterranean as evolving crude hub • Midstream prospects look good given continued contango • A whole lot of arb • Refiners to profit from buyers’ crude market


The Rise of a Buyers’ Crude Market

Tuesday, 22 November 2016 www.jbcenergy.com


The European crude slate has changed radically over the past five years


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0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

1

Latin America West Africa

Saudi Arabia Iraq

Change in Crude Supplies to Europe: 2015 vs 2010 [million b/d]

More Supplied to Europe

Source: IEA, JBC Energy

-2.00

-1.80

-1.60

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

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1

North Sea Iran

Syria Russia

Less Supplied to Europe


In the Mediterranean, medium-sour crude availability turned tight due to lower volumes from Iran, Syria and Russia. Frequent outages and a spat between Baghdad and the KRG also made Kirkuk barrels less attractive. 2014 was the low point.


0

0.5

1

1.5

2

2.5

3

3.5

4

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

Syria

Iraqi Kirkuk Availability

Libya

Iran

Russia (Urals Med)

Of which medium or heavy-sour

Key Reductions in Mediterranean Baseload Crude Imports [million b/d]

Mediterranean baseload crudes were squeezed in the period

from 2010 to 2015

Source: JBC Energy based on IEA data from Monthly Oil Data Service © OECD/IEA 2016, www.iea.org/statistics. License: www.iea.org/t&c; Reuters, Iraqi Ministry, KRG

Missing volumes were replaced mainly with crude from WAF,

LatAm, and Iraqi Basrah

Low Point


The 2014 low point in availability of medium-sour feedstock worsened margins, leading to lower intake in that year. Since then, things have improved markedly!


3,200

3,400

3,600

3,800

4,000

4,200

4,400

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

2017 5-Year Avg 2016

2015 2014 2013

European Med - Crude Intake ['000 b/d]


Iran sanctions were lifted this year, while Iran and Saudi Arabia are seeking to maintain current volumes


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500

600

2011 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Hungary Portugal EU'2011

Poland ARA (NL, BE) Italy

Romania Greece Spain

France IEA MODS

Expected Arrivals of Iranian Crude into EU countries ['000 b/d]

Nov-Dec data preliminary

Source: JBC Estimate based on McQuilling, Platts, Reuters, IEA © OECD/IEA 2015 ADS, IEA Publishing. Licence: www.iea.org/t&c, SuDeP

EU sanctions lifted mid-January; first cargoes shipped mid-Feb for

March arrival


Caspian crude availability is reaching new highs. Moreover, Increases are structural due to start up of Lukoil’s Filanovsky and the Kashagan restart (current K-output around 100 kb/d; operator plans to boost production next year to around 350 kb/d)


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600

800

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1200

1400

Jan '14 Apr '14 Jul '14 Oct '14 Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16

CPC Blend BTC Blend

Caspian Crude Exports ['000 b/d]

Source: Argus, Platts, Reuters

December 2016 loadings are preliminary


Russian declines to the West have also reversed. In fact, FSU East Crude balance set to surge and ENTIRE excess seen getting exported via the Black Sea and Baltics


6,000

6,500

7,000

7,500

8,000

8,500


5-Year Range 5-Year Avg 2015 2016 2017

FSU EAST - Crude Balance ['000 b/d]

Source: JBC derived data


This is because Eastern infrastructure has hit a bottleneck with anti-drag agents already being used to boost ESPO pipeline flows. As demand in Daqing area stable, a real easing of the bottleneck can only be expected in 2020


Purpe

Taishet

Tomsk

Achinskrefinerery

Daqingrefinery

Khabarovskrefinery

to Perm

to Samara

CHINA

CHINA

Transneft's ESPO Trunk Crude Pipeline System: Export Infrastructure to the East

Source: Transneft, various industry sources

KAZAKHSTAN

Kuyumba-Taishet Pipeline

Zapolyarye-PurpePipeline

Vankor-PurpePipeline

Pavlodarrefinery

Atasu

Alashankou

Omsk refinery

Komsomolsk spur 160,000 b/d in 2018

Kozmino

ESPO-2

expansion from 600,000 b/d to

1 million b/d by 2020

Current capacity at 400,000 b/d (Russia) and

300,000 b/d (China);scheduled expansion to 600,000 b/d by late 2017

ESPO-1 expansion from 1.16 million b/d

to 1.6 million b/d by 2020

Mohe

Skovorodino

Komsomolskrefinery

Kozmino port capacity expansion from

600,000 b/d to 730,000

b/d by late 2017


Further near-abroad supply also coming from WAF and Brazil (North Sea gains required to offset high decline rates)


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250

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

Canada oil sands North Sea

US GoM Brazil

Russia WAF

Asia Kashagan

Monthly Additions of New Crude Streams (excl. Middle East & US Shale - 3MMA) ['000 b/d]

Source: JBC Energy


The shale link: a surprise rebound in US shale would free up more WAF crude for Europe and Asia in a repeat of the trend seen in 2011-14


-2500

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0

500

1000

1500

2000

2500

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Canada & Mexico Central & South America EuropeAfrica Asia Middle EastFSU East U.S. Crude Production y-o-y

Y-o-y Changes to U.S. Crude Oil Imports & Production ['000 b/d]

Source: EIA, JBC Energy calculations


Availability of Latin American crude is also high, while less is going into the US


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10%

20%

30%

40%

50%

60%

70%

Jan '13 Jan '14 Jan '15 Jan '16

Mexico Brazil

Exported Share of Domestic Crude Production ['000 b/d]

Source: SIE, ANP-300

-200

-100

0

100

200

300

400

Jan '14 Jan '15 Jan '16

Europe

Far East

Other Americas

US

Y-o-y Change in Mexican Crude Exports ['000 b/d]

3-month moving average


High crude availability has given rise to a buyers’ market and hence deeply discounted crude


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-1.00

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1.00


2012 2013 2014

2015 2016

Arab Light OSP Adjustment (FOB Ras Tanura) vs. ICE BWAVE in the Med [$/bbl]

Source: Saudi Aramco

Discounts have been widening in spite of low flat prices

Some Reasons for Optimism in Downstream

Heavier crudes have become much cheaper relative to Dated Brent over the past two years (ratio analysis used here to account for flat price fluctuation). Light-sweet Saharan Blend has seen no such depreciation. Refiners profit from flexible crude procurement!


0.75

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1.00

1.05

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Urals Med vs Dated Brent Arab Light (Med) vs ICE BWAVE

Basrah Light vs Dated Brent Mars vs Dated Brent

Saharan Blend vs Dated Brent

Ratio of Crude vs Brent Benchmark [ratio]

Source: JBC calculations based onPlatts and ICE data

The value of heavier crudes has clearly declined since the Nov'14

shift in OPEC policy


This has helped boost refining margins in the past two years. 2016 margins are still pretty solid, especially when considering actual crude baskets rather than benchmarks (discounts in terms grades, deep Urals diffs, supply competition focussing generally on Europe).


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15.00

Oct-12 Oct-13 Oct-14 Oct-15 Oct-16

Spread

Rotterdam benchmark-based (Brent)

Rotterdam 33 API basket, average setup

Rotterdam Refining Margins (10-day Avg) [$/bbl]

Source: JBC Energy (metholodogy & calculations), Haverly, McQuilling, Platts

2017 Outlook

Tuesday, 22 November 2016 www.jbcenergy.com

OPEC path difficult. Plenty of questions surround exemptions, compliance, distribution and measurement of any potential freeze/cut. However, the willingness to do something is clearly there.


2017 Outlook

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Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

Targeted production range Output assessment range* Call on OPEC - OPEC

Call on OPEC - IEA Call on OPEC - JBC Energy OPEC output - JBC Energy

OPEC Output, Call on OPEC [million b/d]

Source: JBC Energy, OPEC, based on IEA data from Monthly Oil Data Service © OECD/IEA 2016, www.iea.org/statistics, Licence: www.iea.org/t&c; as modified by JBC Energy

*includes assessments from IEA, EIA, OPEC secondary sources

and OPEC direct communication

2017 Outlook

Current spread between physical and future crude very wide. Expected to narrow on OPEC decision, one way or the other. But oversupply so large that contango expected to remain in place throughout 2017


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4.00

Jan '14 Apr '14 Jul '14 Oct '14 Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16

ICE Brent 1st vs 3rd

Dtd Brent vs 3rd Mth Brent

Market Structures: Physical and Future Brent [$/bbl]

Source: Platts, ICE

1. Spread between physical and futures wide in 2016 (reflects different market interpretations)2. Given physical balances, contango expected to remain throughout 2017

2017 Outlook

In fact, global storage has increased by around 1 billion barrels in the past 3 years, but a good 500 million barrels of this is crude in China.


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Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

Other Products

Fuel Oil

Gasoil/Diesel

Jet/Kero

Gasoline

Naphtha

LPG

NGL and Other Feedstocks

Crude Oil Stocks

Crude Oil Stocks, China

Crude Oil Stocks, US

Global Stocks Surplus to Q1 2014 [million barrels]

Crude stocks have built by 240 million barrels, products by 120 million barrels (middle distillates

by 45 million barrels)

Global Stocks Surplus to Q1 14, Main Products [million barrels]Global Stocks Surplus to Q1 2014 [million barrels]

Source: JBC Derived Data

Global Stocks Surplus to Q3 13 by Stream [million barrels]

Crude stocks have built by 310 million barrels, products by 120 million barrels (middle distillates

by 75 million barrels)

2017 Outlook

Our crude and condensate balance shows significant surpluses over January to August 2017 – clearly outpacing 2015 and 2016 observations – due to the new supply streams. This should keep a lid on any upside to prices.


-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000


5-Year Range 5-Year Avg 2015 2016 2017

WORLD - Crude Balance ['000 b/d]

Source: JBC derived data

2017 Outlook

In other words, the market is set to move from a temporary rebalancing in 2016 to sizable surpluses again in 2017, especially from the crude side, which should pressure oil prices to a certain extent.


-1.5

-1.0

-0.5

0.0

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1.0

1.5

2.0

2.5

3.0

Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q3 16 Q1 17 Q3 17 Q1 18 Q3 18

JBC EnergyIEAOPECEIA

Our JBC implied stockbuild is the difference between JBC assessments of global feedstocks supply and final

product demand, using a country-by-country and stream-by-stream approach. JBC Energy OPEC

production estimates are used for IEA and OPEC figures as of Q4 2016.

Implied Global Stockbuild/draw [million b/d]

Source: JBC Energy, IEA, EIA, OPEC

2017 Outlook

For the Mediterranean and European markets, lengthening balances in West of Suez clearly indicate more of the same in 2017 as in 2016 and we should see even more arbitrage from the Atlantic Basin to Asia.


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Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17

East vs West

East of Suez Balance

West of Suez Balance

East of Suez vs West of Suez Crude & Condensate Balances ['000 b/d]

We expect the east of Suez balance to be tighter

throughout 2017Source: JBC Derived Data

2017 Outlook

Consequently we expect inter-regional arb spreads to facilitate increased flows out of the oversupplied region


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Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17

Brent/Dubai EFS Dated Brent vs LLS M-2 (London)

Source: Platts, PVM, ICE, JBC Energy estimate

Inter-regional Crude Differentials [$/bbl]

Weak Brent to support arbitrage prospects for Brent-related grades

Thank you!

special presentation ‘new/old views on crude oil and ... · transneft's espo trunk crude...

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