monthly oil report 042012

7/29/2019 Monthly Oil Report 042012

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Global Research

Sector-Oil

April 2012

Oil Market Report

WTI price decrease by 3.3% to USD102.8 per barrel during the review period Iran nuclear talks put downward pressure on oil prices

Rise in Spanish and Italian bond yields renew fears of contagion OPEC production (ex Iraq) increases by 2.2%QoQ to 28.4mnbpd in 1Q12Reduction in geo-political risk takes steam off oil pricesStart of talks with Iran has raised hopes of a diplomatic solution on the nuclear issue reducing fears ofa possible military stand-off. Oil prices decreased by 3.3% to USD102.8 per barrel during the reviewperiod (12 Mar-13 Apr 2012). In addition, lower than expected job creation in the US in March andpossible usage of US strategic reserves put pressure on oil prices. Furthermore, renewal of fears ofcontagion in the Euro-zone after a rise in Spanish and Italian bond yields has again dampenedsentiments after a concrete deal was struck to save Greece.

Despite the decline in the review period, WTI prices have remained close to USD100 per barrel in

1Q12. S&P index increased by 12.0% in 1Q12 reflecting the improvement in global economicprospects. S&P index is a good indicator of global economic recovery as more than 40.0% of itsaggregate earnings come from outside of US. The US 1Q12 earnings season has got off to a goodstart with 75.0% of the companies so far beating earnings expectations, according to Reuters. As canbe seen in the graph below WTI crude oil prices have largely followed the trend in S&P 500 index.

Oil Price Movement

World oil demand expected to recover by 0.86mnbpd in 2012World oil demand is expected to continue to recover in 2012, though at a slower place. World oidemand is expected to increase by 0.86mnbpd in 2012 compared to 0.83mnbpd in 2011 and 1.6mnbdin 2010. The year 2012 has so far seen a raft of positive news coming out of US and European UnionThe US economy has added 858,000 jobs in the four months to March 2012 reflecting theimprovement in the worlds largest economy. Meanwhile, there have also been headways in theEuropean debt crisis which have further improved sentiments. Though fears of contagion got revived

due to recent increase in Spanish bond yields, nevertheless, the European Union has shown itsdetermination to save the Union which bodes well for oil demand.

Non-Opec supply expected to surge again in 2012 after a dull 2011Total Non-OPEC supply is expected to surge by 0.52mnbpd in 2012 driven by increase in productionby 0.41mnbpd in North America. This follows Non-OPEC supply growth of just 0.09mnbpd in 2011which partly explained the high oil prices in 2011 despite economic uncertainty prevailing at that timeIn 2012 USA and Canadian oil production is expected to more than offset the decline in Mexicanproduction. Improvement in granting of permits has also improved the outlook for US oil production inaddition to expected increase in output from some fields.

OilR

ep

ort

Faisal Hasan, CFA

Head of [email protected]: (965) 2295-1270

Umar Faruqui, ACCAFinancial [email protected]: (965) 2295-1438

Global Investment Housewww.globalinv.net

1.20

1.25

1.30

1.35

1.40

1.45

1.50

70

80

90

100

110

120

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

WTI USD/EUR

1,000

1,100

1,200

1,300

1,400

1,500

70

80

90

100

110

120

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

WTI S&P500


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Global Research - Kuwait Oil Report

April 2012 2

Oil Prices at a Glance

Source: Bloomberg

Selected Crude Oil Types

Change Year

USD per barrel Feb 12 Mar 12 Mar/Feb 2011 2012

OPEC Reference Basket 117.48 122.97 5.49 101.27 117.49

Arab Light 118.01 123.43 5.42 102.00 118.17

Basrah Light 116.21 121.96 5.75 100.62 116.22

Bonny Light 122.36 127.98 5.62 107.17 121.25

Es Sider 120.26 126.03 5.77 104.98 119.30

Girassol 120.51 126.30 5.79 105.65 120.04

Iran Heavy 116.51 122.46 5.95 100.12 117.00

Kuwait Export 116.79 122.32 5.53 99.56 117.12

Marine 116.99 122.80 5.81 100.84 116.91

Merey 109.26 112.07 2.81 88.20 109.74

Murban 119.31 125.61 6.30 103.52 119.42

Oriente 112.44 118.26 5.82 93.74 111.71

Saharan Blend 120.36 126.13 5.77 106.48 119.41

Minas 126.31 133.85 7.54 106.82 126.97

Dubai 116.17 122.47 6.30 100.59 116.26

Isthmus 114.42 120.46 6.04 98.03 115.05

T.J. Light 112.36 118.41 6.05 95.96 113.02

Brent 119.56 125.33 5.77 105.23 118.60

West Texas Intermediate 102.35 106.31 3.96 94.31 103.04

Urals 118.50 122.41 3.91 102.48 117.02

WTI/Brent -17.21 -19.02 -1.81 -10.92 -15.56

Brent/Dubai 3.39 2.86 -0.53 4.64 2.34

Source: OPEC Monthly Oi l Report

100

105

110

115

120

125

130

13-Mar

15-Mar

17-Mar

19-Mar

21-Mar

23-Mar

25-Mar

27-Mar

29-Mar

31-Mar

2-Apr

4-Apr

6-Apr

8-Apr

10-Apr

12-Apr

WTI OPEC Kuwait


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April 2012 3

OPEC Production

Production witnessing an upsurge

Oil production has been on the rise since 3Q11 after unrest in Libya resulted in decline in production in 2Q11. OPEC oil

production has reached 28.4mnbpd in 1Q12 compared to 27.8mnbpd in 4Q11, an increase of 2.2% during the period. With oil

prices hovering at high levels, there is always an incentive for oil producers to increase their production to maximize revenues.

However, this time around most of the increase has been due to faster than expected recovery in Libya oil production which hascontributed more than 90.0% to the overall growth during 1Q12. In addition, Saudi Arabia which jacked up its production to make

up for the shortfall has kept its production at high levels.

Recovery in Libyan crude production offsetting decline in Iranian production

We have given production trends of selected countries in the following graph. It will be interesting to see how the graph shapes

up for the rest of the year. As we expected in our last report, production in Libya increased in March 2012 to 1.37mnbpd, a

growth of 8.8% MoM taking the average to 1.22mnbpd in 1Q12. We expect production in Libya to increase further and move

closer to the pre-revolution production levels of 1.55mnbpd. On the contrary, Iran production is on a decline, though at a slow

pace to 3.41mnbpd in 1Q12, a decline of 4.4%QoQ. The production is likely to go down further as EU sanctions take effect in

3Q12. According to some analysts, as much as 1.0mnbpd of Iranian crude can go off the market. Keeping in mind the different

factors that are playing out together, Saudi Arabia, as the largest swing producer, will have to play a fine balancing act.

Production trends of selected countries (mnbpd)

Source: OPEC Monthly Oil Report

OPEC Production (mnbpd) and OPEC Quarterly Oil Prices (USD)

Source: Bloomberg,OPEC & Global Research

24

26

28

30

20

40

60

80

100

120

3Q-08

4Q-08

1Q-09

2Q-09

3Q-09

4Q-09

1Q-10

2Q-10

3Q-10

4Q-10

1Q-11

2Q-11

3Q-11

4Q-11

1Q-12

OPEC Pro duction (RHS) OPEC Pri ce (LHS)

OPEC ProductionCut of 2.2mn barrels

Start of unrest inLibya

EU ann ounces

sanctions on Iraneffective from J uly

2012


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April 2012 4

Non-OPEC Supply

Non-OPEC supply growth slowed down drastically to 0.09mnbpd in 2011 after a strong increase of 1.13mnbpd in 2010. This

lower than expected increase in non-OPEC oil supply goes some distance to explain the high oil prices in 2011 despite the

economic uncertainty in the backdrop of the European debt crisis. Though, political upheaval played a significant factor in the

spike in oil prices, we believe that the reduction in Non-OPEC supply maintained an upward pressure on crude oil prices. The

slow growth was due to delayed ramp-up in some fields, unplanned shutdowns, adverse weather and political problems in

countries such as Yemen and Syria.

Non-Opec supply expected to surge again in 2012 after a dull 2011

Total Non-OPEC supply is expected to surge by 0.52mnbpd in 2012 driven by increase in production by 0.41mnbpd in North

America. In North America, USA and Canada are expected to more than offset the decline in Mexican production. The

improvement in speed of permits has also improved the outlook for US production in addition to expected increase in output

from some fields.

(Oil supply mnbpd) 2011 1Q12 2Q12 3Q12 4Q12 2012 Change 12/11

North America 15.51 15.88 15.83 15.93 16.03 15.92 0.41

Western Europe 4.07 4.10 3.90 3.83 3.99 3.95 -0.11

OECD Pacific 0.50 0.51 0.56 0.55 0.52 0.54 0.03

Total OECD 20.08 20.49 20.28 20.31 20.55 20.41 0.33

Other Asia 3.63 3.63 3.66 3.67 3.69 3.66 0.03

Latin America 4.74 4.91 4.96 5.00 5.03 4.98 0.23

Middle East 1.69 1.50 1.54 1.56 1.56 1.54 -0.15

Africa 2.59 2.39 2.41 2.49 2.49 2.44 -0.15

Total DCs 12.65 12.43 12.56 12.72 12.77 12.62 -0.03

FSU 13.26 13.40 13.33 13.38 13.46 13.39 0.14Other Europe 0.14 0.14 0.14 0.15 0.15 0.14 0.01

China 4.13 4.16 4.17 4.22 4.30 4.22 0.08

Total "Other regions" 17.53 17.70 17.65 17.75 17.91 17.75 0.23

Total Non-OPEC production 50.26 50.62 50.49 50.78 51.24 50.78 0.52

Processing gains 2.13 2.19 2.19 2.19 2.19 2.19 0.06

Total Non-OPEC supply 52.39 52.81 52.68 52.97 53.43 52.97 0.58

Previous estimate 52.34 52.74 52.71 52.96 53.37 52.95 0.61

Revision 0.05 0.07 -0.03 0.01 0.06 0.03 -0.03

Source: OPEC Monthly Oil Report

Non-OPEC Oil Supply growth (m nbpd)

Source: OPEC & Global Research

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

North America WesternEurope Latin America FSU China TotalNon-Opec

2007 2008 2009 2010 2011 2012e


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April 2012 5

World Oil Demand

World oil demand is expected to continue to recover in 2012, though at a slower place. World oil demand is expected to increase

by 0.86mnbpd in 2012 compared to 0.83mnbpd in 2011 and 1.6mnbd in 2010. The year 2012 has so far seen a raft of positive

news coming out of US and European Union. The US economy has added 858,000 jobs in the four months to March 2012

reflecting the improvement in the worlds largest economy. Meanwhile, there have also been headways in the European debt

crisis which have further improved sentiments. Though fears of contagion got revived due to recent increase in Spanish bond

yields, nevertheless, the European Union has shown its determination to save the Union which bodes well for oil demand.

Demand growth in China to offset decline in Euro-zone

Despite the improvements in sentiments in Europe, the Western Europe oil demand is expected to decrease by 0.24mnbpd in

2012, which is not surprising as the Euro-zone economy is expected to contract in 2012 on the back of austerity measures being

taken in many countries. China is expected to remain the major oil demand growth driver with an expected increase of

0.36mnbpd in 2012. Though the economic growth is expected to slowdown in 2012, China has managed to land softly. With

decrease in bank reserve requirements and reduction in inflation, the focus is likely to come back on growth.

Oil demand (mnbpd) 2011 1Q12 2Q12 3Q12 4Q12 2012 Volume %

North America 23.55 23.18 23.33 23.70 23.51 23.43 -0.12 -0.51

Western Europe 14.35 13.93 13.90 14.50 14.09 14.11 -0.24 -1.70

OECD Pacific 7.89 8.66 7.32 7.81 8.40 8.05 0.16 2.04

Total OECD 45.79 45.76 44.54 46.01 46.00 45.58 -0.20 -0.45

Other Asia 10.47 10.55 10.71 10.59 10.84 10.67 0.20 1.94

Latin America 6.36 6.31 6.50 6.68 6.59 6.52 0.17 2.60

Middle East 7.46 7.48 7.54 7.92 7.59 7.64 0.18 2.35

Africa 3.37 3.42 3.41 3.28 3.44 3.39 0.02 0.52

Total DCs 27.65 27.76 28.16 28.47 28.45 28.22 0.56 2.03

FSU 4.24 4.23 4.08 4.50 4.54 4.34 0.10 2.42

Other Europe 0.69 0.69 0.65 0.69 0.76 0.70 0.00 0.66

China 9.41 9.43 9.98 9.81 9.98 9.80 0.39 4.15

Total "Other regions" 14.34 14.35 14.71 15.00 15.28 14.84 0.50 3.47

Total world 87.78 87.88 87.42 89.49 89.74 88.64 0.86 0.97

Previous estimate 87.77 87.84 87.41 89.50 89.74 88.63 0.86 0.98

Revision 0.01 0.03 0.01 -0.01 0.00 0.01 0.00 0.00

Source: OPEC Monthly Oi l Report

World Oil Demand growth (mnbpd)

Source: OPEC & Glob al Research

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

NorthAmerica

WesternEurope

To tal OECD Mid dle East Ch in a To tal DC's W orld

2007 2008 2009 2010 2011 2012e


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April 2012 6

Oil Inventories

US Commercial Crude Oil Stocks (mn barrels) US Gasoline Stocks (mn barrels)

US Distillate Stocks (mn barrels) US Total Crude and Petroleum Stocks Excl.SPR (mn barrels)

OECD Europe Total Oil Stocks (mn barrels) Japan Commercial Oil Stocks (mn barrels)

Source: Bloomberg, EIA,OPEC & Global Research

320

330

340

350

360

370

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

190

200

210

220

230

240

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

100

120

140

160

180

Jan-11

F

eb-11

M

ar-11

A

pr-11

M

ay-11

Jun-11

J

ul-11

Aug-11

Sep-11

O

ct-11

N

ov-11

D

ec-11

Jan-12

F

eb-12

M

ar-12

1,020

1,040

1,060

1,080

1,100

1,120

1,140

Jan-11

Feb-11

M

ar-11

Apr-11

May-11

Jun-11

J

ul-11

Au

g-11

Se

p-11

O

ct-11

Nov-11

Dec-11

Jan-12

Feb-12

M

ar-12

1,300

1,320

1,340

1,360

1,380

1,400

1,420

1,440

1,460

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11 150

155

160

165

170

175

180

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12


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April 2012 7

Disclaimer

This material was produced by Global Investment House KSCC (Global),a firm regulated by the Central Bank of Kuwait. This document is not to be

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monthly oil report 042012

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