analysis and perspectives: crude oil and natural gas … · analysis and perspectives: crude oil...
TRANSCRIPT
Analysis and Perspectives: CrudeOil and Natural Gas Markets
Market Analysis and PerspectiveHedging Price Risk Exposure
Sal Gilbertie – Senior Vice President Energy Marketing
FIMAT for ASERCA, Mexico City, 28 February 2006
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Crude Oil Spot Price – NYMEX (4 Year Weekly)
High Volatility and Future Directional Price Risk
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Crude oil demand anticipated to rise approximately 1.5 to 1.8 million barrels per day in 2006.
OPEC capacity expected to increase approximately 1.2 million barrels per day in 2006.
Non-OPEC capacity estimated to increase by approximately 1.0 million barrels per day in 2006.
Residual conservation efforts from post hurricane price spikes expected to remain throughout most of 2006.
Long-term demand (late 2006 and beyond) from China, India, Pacific Rim to resume rapid incremental growth rates.
Crude Oil Supply/Demand
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Crude Oil:Current Supply/Demand and Forecast
Current
Refinery turnaround season demand to be below normal.
Markets are well supplied; prices will continue to fall from Katrina peaks.
Gulf of Mexico production increasing daily, post-Katrina supply disruptions will continue into the last half of 2006.
Hurricane season will attract speculators (longs); producers and trade participants will be reluctant to sell hedge, but spot markets will remain fundamentally well supplied.
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Crude Oil Price Analysis and Forecast
Current trend is down – Crude Oil spot price is nearly 16% lower than Katrina highs – downtrend will continue.
Spot crude prices will fall below the current 2006 lows.
Projected 2006 demand will not stress supplies.
Remaining 2006 Calendar swap price for WTI is well below forward curve prices for 2007 and beyond
Forward curve prices reflect long-term supply fears.
Forward curve will flatten as stocks continue to build and long-dated supply fears ease.
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Until the advent of the 2006 hurricane season, prices for 2006 will continue to decline toward the lower end of the price range as predicted by the Over-The-Counter (OTC) option markets.
The one-year at-the-money Put/Call Option price is $10.00 suggesting a 2006 spot WTI Crude potential price range of approximately $50.00 to $76.00.
What the Crude Oil Market is telling us now
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WTI Crude Oil 3 Year Forward Curve
54
56
58
60
62
64
66
3M 9M 15M
21M
27M
33M
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Natural Gas Spot Price – NYMEX (4 Year Weekly)
High Volatility and Future Directional Price Risk
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Current demand for natural gas running behind expectations.
Private estimates (FIMAT proprietary) show 2 bcf/day of offline demand not related to warm winter weather.
Demand in natural gas dependent manufacturing sectors (foam rubber, chemicals, fertilizer, etc.) still contracted in Katrina affected regions of US.
Return of normal temperatures to US markets not enough to shift oversupply balance in late winter.
Long-term demand (late 2006 and beyond) expected to recover by Q4 2006.
Natural Gas Demand
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Supply will remain adequate for late winter demand.
Potential for record storage levels at end of 2005/2006 winter season.
Over 1 bcf/day of supply still offline due to lingering Katrina disruptions.
Gulf of Mexico supply will continue to increase throughout 2006, as offshore Katrina damage is repaired and onshore processing units are brought back online.
Potential for oversupply in summer.
US domestic supply increases in 2007 (and beyond) will lag incremental demand increases.
Natural Gas Supply
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Natural Gas:Current Supply/Demand and Forecast
Winter demand was well below normal; remaining winter-season demand will not stress supplies.
Gulf of Mexico production increasing daily, post-Katrina supply disruptions will continue into the last half of 2006.
Spot gas prices will determine level of summer buying for winter storage; April/October storage buying demand may be lighter than normal if spot summer gas is above $8.
Hurricane season will attract speculators (longs); producers and trade participants will be reluctant to sell hedge, but spot markets will remain fundamentally well supplied.
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Forward Supply/Demand and Forecast2007 and Beyond
Overall world demand will continue to outpace replacement rate discoveries of both natural gas and crude
United States fundamental issues of structural natural gas tightness will remain.
China/India/Pacific Rim incremental energy demand growth will continue to exaggerate upward price spikes in times of actual supply disruption or uncertainty.
Natural gas will maintain an Mmbtu price premium within the energy complex, demand for competing fuels will increase.
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Natural Gas Price Analysis and Forecast
Current trend is down – Natural Gas spot price is nearly 55% lower than Katrina highs – downtrend will continue.
Spot gas prices will fall below the current 2006 lows.
Remaining 2006 Calendar swap price for US Natural Gas is well below forward curve prices for 2007 and beyond.
Forward curve prices reflect last-half 2006 and multi-year winter supply fears.
Forward curve will flatten as summer stocks build and long-dated supply fears ease.
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Until the advent of the 2006 hurricane season, prices for 2006 will continue to decline toward the lower end of the price range as predicted by the Over-The-Counter (OTC) option markets.
The one-year at-the-money Put/Call Option price is $2.00 suggesting a 2006 spot gas potential price range of approximately $5.50 to $12.50.
What the Natural Gas Market is telling us now
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Henry Hub Natural Gas 5 Year Forward Curve
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
1M 3M 6M 9M 1Y 15M
18M
21M 2Y 27M
30M
33M 3Y 39M
42M
45M 4Y 51M
54M
57M 5Y 63M
66M
69M
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Natural Gas Spot Price – NYMEX (4 Year Weekly)
High Volatility Creates Financial Uncertainty
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Effective, consistent use of hedging mechanisms creates pricing and budgetary certainty.
Financial Stability by Managing Volatility with Hedging
Stable natural gas costs diminish variability of financial results.
Stable commodity prices and financial results allow focus on profit margins rather than damage control.
Hedging: Invaluable Risk Manager’s Tool
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High Volatility Created by the Unexpected
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Most large corporations and an increasing number of state owned/quasi-governmental entities are hedging to stabilize cash flows and predictability of returns.
Hedging assures budgetary compliance providing both financial and political protection for companies and executives who are under increasing regulatory and public scrutiny to manage economically critical assets.
Hedging: Predictability of Results
Hedging: More than just financial protection
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Exchange Listed Futures and Options
NYMEX, IPE, ICE, MexDer
Over-the-Counter (OTC) Transactions
Bilateral Swaps, Referentials, Customized OTC Contracts (commodity, instrument, location, pricing mechanisms, settlement dates)
Hedging Mechanisms
Managing Volatility with Hedging Mechanisms
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SummaryOverall price volatility in energy complex will remain intact.
Supply/Demand fundamentals support near term downward price trend well into 2006.
2006 hurricane season will bring speculators back into market.
Current Forward Curve and Option prices are good predictors of future volatility and pricing points.
Hedging is primary tool of professional risk managers worldwide.
Price and planning stability achieved through hedging now considered invaluable by executives and officials responsible for oversight of public and private assets.
Availability of both exchange listed and OTC hedging mechanisms is plentiful and increasing rapidly.
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Contact:
Sal Gilbertie Senior Vice President, Energy Marketing
Tel.: 646 557 7652 e-mail: [email protected]
Gonzalo Zubillaga Ochoa Vice-President Latin American Group
Tel.: +52 (55) 50 80 - 10 17 e-mail: [email protected]
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