oil market outlook 022013

7/29/2019 Oil Market Outlook 022013

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Global Research

Sector-Oil

03 February 2013

Oil Market Outlook 2013

WTI crude oil prices expected to be around USD85-90 per barrel in 2013 US crude oil production to drive Non-OPEC supply growth in 2013 China to remain the main oil demand growth driver in 2013 2012 WTI crude oil prices decline by 1.0%YoY to USD94.1 per barrel WTI crude oil prices expected to be around USD85-90 per barrel in 2013Global Research expects average WTI crude oil price to be in the range of USD85-90 per barrel in2013 which is slightly conservative compared to Bloomberg Consensus crude oil price of aroundUSD97.0 per barrel and slightly lower than 2012 average price of USD94.1 per barrel. Our assumptionis backed by expected strong growth in Non-OPEC supply which is likely to keep a lid on oil pricesdespite improvement in economic outlook in US and China. In addition, key players have expressedtheir satisfaction with current crude oil prices. Thus, with the expected increase in OPEC sparecapacity in 2013, we believe, OPEC will have the leverage to keep oil prices near current levels incase they threaten to go up to unsustainable levels.

Significant risks remain mainly to the downsideProlonged downturn in Euro-zone poses a major downside risk to oil prices along with any excessivefiscal consolidation in the US. Slow down of economic growth in China and more than expectedincrease in US oil production also poses a significant downside risk. On the other hand, continuedpolitical instability in the Middle East, particularly in Egypt and Iran and better than expected worldeconomic growth provide upside risk to oil prices.

Oil Price Movement

Source: OPEC, EIA, Bloomberg & Global Research

2012 average WTI prices end at the lower end of our estimateAverage WTI oil prices ended 2012 at the lower end of our estimated range of USD95-100 per barregiven in ourOil Market Outlook 2012report. Average 2012 WTI price of USD94.01 was down slightlyby 1.0% compared to 2011. Meanwhile, world oil demand grew by 0.86%YoY in 2012 after increasing

by 1.04%YoY in 2011. The demand was driven by emerging countries, particularly China. Europeandebt crisis remained a major theme throughout 2012 as policy makers in Europe made frantic efforts tosave the currency union. In short, concerns over economic growth in US, Europe and China werecounterbalanced by oil demand growth and geo-political risk, particularly in the Middle East.

North America expected to account for two-third of growth in Non-OPEC supplyAccording to EIA, North America is expected to account for two-third of the projected growth in NonOPEC supply over the next two years due to continued production growth from US tight oil formationsand Canadian oil sands. The prediction that US will become the largest oil producer by 2017 hasbecome a topical discussion, particularly in the energy exporting countries.

OilR

ep

ort

Faisal Hasan, CFA

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

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

Global Investment Housewww.globalinv.net

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Feb-12

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S&P500 WTI

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120

1.20

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1.30

1.35

1.40

Feb-12

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USD/EUR W TI


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Global Research - Kuwait Oil Report

February 2013 2

Oil Market Outlook-2013

Euro-zone in a better situation; Major risks remain

Europe stands in a much better position compared to last year. Even though, IMF in its January 2013 WEO report, has revised

downwards its 2013 GDP estimate for Euro Area to a contraction of 0.2% from an expected expansion of 0.2% given in its

October 2012 WEO report, the risks of the break-up of the currency union have significantly reduced. The major developments

included pledge by ECB to purchase bonds of struggling countries if they seek help from Europes rescue fund. This move has

brought the borrowing costs down by providing a sort of protection against wild moves in the market. The other majordevelopment was related to approval by Euro-zone lenders to give USD56.0bn to Greece to deal with the debt crisis. The move

highlights the determination of the Euro-zone to keep Greece within in the bloc. Meanwhile, rise in consumer confidence to a 2.5

year high in Germany has mitigated fears about the crisis dragging down the Europes largest economy. In addition, consumer

and investor confidence for the whole Euro-zone increased in January 2013. However, major downside risks remain as the

Euro-zone countries will need to sustain the austerity measures which threaten to prolong economic recession and cause social

unrest.

China to remain the main growth driver

China is expected to be the main driver of oil demand growth with an expected increase of 0.35mnbpd in 2013. Fears of a hard

landing were dispelled by a rebound in 4Q12 GDP. According to IMF, the Chinese GDP is expected to increase by 8.2% in 2013

compared to 7.8% in 2012. The target inflation rate for China is 3.5% for 2013. Inflation inched up to 2.4%YoY in December

2012, indicating a room for following a more flexible monetary policy to support growth. High economic growth in China is

expected to be sustained by domestic consumption as export growth slows down. The statement released after the annual

leadership meeting in China also highlighted the importance of domestic demand to sustain Chinese economic growth.

US economy on the road to recovery; Bernanke hints at continuation of QE3

With fiscal cliff out of the way, the issue of increasing the debt ceiling and fiscal consolidation has come to the fore. Any

agreement on tax increases or spending cuts will be watched closely as any excessive fiscal consolidation can derail recovery.

However, recovery in house prices, improvement in retail sales, increase in ISM index and reduction of unemployment rate has

breathed optimism in the markets. IMF expects US economy to grow by 2.0% in 2013 after increasing by 2.3% in 2012.

Recovery in the US economy, the worlds largest oil consumer, will play a large role in determining the direction of oil prices. Ben

Bernanke in his recent statement has indicated that it is unlikely to ease its USD85bn monthly bond purchases to help the

recovery process and bring the unemployment rate down further.

WTI crude oil prices expected to be around USD85-90 per barrel in 2013

Global Research expects average WTI crude oil price to be in the range of USD85-90 per barrel in 2013 which is slightly

conservative compared to Bloomberg Consensus crude oil price of around USD97.0 per barrel and slightly lower than 2012

average price of USD94.1 per barrel. Our assumption is backed by expected strong growth in Non-OPEC supply which is likely

to keep a lid on oil prices despite improved economic outlook in US and China. In addition, key players have expressed

satisfaction with crude prices at current levels. Thus with the expected increase in OPEC spare capacity in 2013, we believe it

will give OPEC members the leverage to keep prices near current levels in case they threaten to go up to unsustainable levels.

2012 forecast end close to our forecast

Our 2012 estimate given in Oil Market Outlook 2012 for WTI was close to the actual price. However, our estimate for OPEC

crude oil deviated by 15-21% as the gap between WTI and OPEC crude prices failed to narrow down. We now expect the

premium for OPEC basket price over WTI to persist as geo-political risk remains high in the Middle East and crude oil production

increases in the US. Historically, WTI has traded at a USD2.0 per barrel premium over OPEC basket price.

Real GDP Growth % 2009 2010 2011 2012e 2013e 2014e Oil demand (mnbpd) 2009 2010 2011 2012e 2013e

World -0.6 5.2 3.9 3.2 3.5 4.1 World 84.3 86.9 87.8 88.8 89.6

United States -2.6 3.0 1.8 2.3 2.0 3.0 North America 23.3 23.8 23.6 23.8 23.9

Euro Area -4.1 1.9 1.4 -0.4 -0.2 1.0 Western Europe 14.7 14.6 14.4 13.8 13.6

China 9.1 10.4 9.3 7.8 8.2 8.5 China 8.2 9.0 9.4 9.7 10.1

MENA 2.0 4.3 3.5 5.2 3.4 3.8 Middle East 7.1 7.3 7.5 7.6 7.8

Source: IMF Source: OPEC

USD per barrel 2009 2010 2011 2012 2013e

Global Research estimate for OPEC crude oil 55-60 75-80 80-85 90-95 97-103

Average OPEC price 61.06 77.45 107.5 109.45 -

Global Research estimate for WTI crude oil 60-65 80-85 85-90 95-100 85-90

Average WTI price 61.88 79.42 94.9 94.09 -

Source: OPEC & Global Research


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February 2013 3

Oil Prices at a Glance

Source: Bloomberg & Global Research

70

80

90

100

110

120

130

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

WTI OPEC

Selected Crude Oil Types

Change Year

USD per barrel Nov 12 Dec 12 Dec/Nov 2011 2012

OPEC Reference Basket 106.86 106.55 -0.31 107.46 109.45

Arab Light 108.47 108.35 -0.12 107.82 110.22

Basrah Light 105.45 105.04 -0.41 106.17 107.95

Bonny Light 110.91 111.19 0.28 114.15 113.68

Es Sider 109.01 109.29 0.28 111.9 111.87

Girassol 108.91 108.92 0.01 111.57 112.21

Iran Heavy 106.8 106.56 -0.24 106.11 109.05

Kuwait Export 106.82 106.19 -0.63 105.63 108.93

Marine 107.12 106.25 -0.87 106.53 109.25

Merey 93.28 91.68 -1.6 97.94 100.03

Murban 109.69 108.9 -0.79 109.77 111.75

Oriente 97.15 98.68 1.53 101.03 102.76

Saharan Blend 109.36 109.89 0.53 112.92 111.51

Brent 109.11 109.29 0.18 111.36 111.63

Dubai 107.22 106.34 -0.88 106.21 109.06

Isthmus 99.37 99.03 -0.34 105.64 106.53

Mars 102.95 103.96 1.01 107.54 106.79

Minas 108.26 108.96 0.70 114.79 116.56

Urals 108.23 108.21 -0.02 109.19 110.49

WTI 86.59 88.23 1.64 94.99 94.09

WTI/Brent -22.52 -21.06 1.46 -16.38 -17.55

Brent/Dubai 1.89 2.95 1.06 5.15 2.58

Source: OPEC Monthly Oil Report


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February 2013 4

OPEC Production and Spare Capacity

OPEC production declines as Saudi Arabia reduces production

OPEC production declined for the second successive quarter largely due to the decline in Saudi oil production by 347,000bpd in

4Q12. Saudi Arabia is scaling back production after it increased its production to around 9.8mnbpd barrels in 3Q12 compared to

around 9.1mnbpd in 2Q11 to offset a decline in Iranian and Libyan oil production. The decline is consistent with our expectation

as Libyan production has reached close to pre-revolution levels and OPEC moves towards adhering to output ceiling of

30.0mnbpd.

Spare capacity expected to increase

OPEC spare capacity in 2012 reduced to its lowest level since 2008 as OPEC members increased production to offset decrease

in production from Iran and Libya. Spare capacity estimates can differ depending on the source. However, as per the data

available, Saudi Arabia accounted for almost all of the spare capacity. The definition of spare capacity as per EIA is the volume

of production that can be brought into production within 30 days and sustained for 90 days. Going forward, the spare capacity isexpected to breach 3.0mnbpd in 2013 as OPEC members reduce their production to adhere to the production quotas and oil

supply from Non-OPEC countries increases, particularly oil production in US.

OPEC Production ex-Iraq (mnbpd) and OPEC Quarterly Oil Prices (USD)

Start of unrest in Libya

Source: Bloomberg,OPEC & Global Research

24

26

28

30

20.0

40.0

60.0

80.0

100.0

120.0

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

2Q-12

3Q-12

4Q-12

OPEC Produc tion (RHS) OPEC Pr ice (LHS)

OPEC Prod uction Cutof 2.2mn barrels

Start of unrest inLibya

Imposition of EUsanctions on Iran

OPEC Spare Capacity (mnbpd)

Source: EIA & Global Research

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20

40

60

80

100

120

140

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

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2Q2

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3Q2

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2Q2

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3Q2

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4Q2

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2Q2

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3Q2

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4Q2

014

OPEC Spare Capacity WTI Real Pr ice (GDP Deflated)


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February 2013 5

Non-OPEC Supply

Non-OPEC supply increase by 0.54mnbpd in 2012

Non-OPEC supply grew strongly by 0.54mnbpd in 2012 after a sluggish growth of 0.13mnbpd in 2011. The growth was driven by

increase in oil production in the North American region by 1.07mnbpd. According to EIA, North America is expected to account

for two-third of the projected growth in Non-OPEC supply over the next two years due to continued production growth from US

tight oil formations and Canadian oil sands. The prediction that US will become the largest oil producer by 2017 has become a

topical discussion, particularly in the energy exporting countries.

North America to drive Non-Opec supply growth in 2013

Non-OPEC supply is expected to increase by 0.93mnbpd in 2013. North America is expected to remain a significant contributor

to supply growth with an estimated increase of 0.61mnbpd due to extraction of tight oil. Meanwhile, Europe is expected to

continue its decline in production by 0.16mnbpd in 2013 due to ageing oil wells in the North Sea.

(Oil supply mnbpd) 2012 1Q13 2Q13 3Q13 4Q13 2013 Change 13/12

Americas 16.62 17.10 17.17 17.24 17.40 17.23 0.61

Europe 3.77 3.73 3.57 3.50 3.66 3.62 -0.16

Asia Pacific 0.62 0.67 0.69 0.69 0.68 0.68 0.07

Total OECD 21.01 21.49 21.43 21.44 21.73 21.53 0.52

Other Asia 3.59 3.59 3.61 3.62 3.64 3.62 0.02

Latin America 4.72 4.76 4.78 4.89 4.95 4.84 0.13

Middle East 1.51 1.47 1.46 1.50 1.55 1.50 -0.02

Africa 2.33 2.32 2.40 2.47 2.49 2.42 0.09

Total DCs 12.15 12.13 12.24 12.49 12.64 12.37 0.22

FSU 13.31 13.40 13.35 13.39 13.51 13.41 0.10

Other Europe 0.14 0.14 0.14 0.14 0.14 0.14 0.00

China 4.20 4.27 4.24 4.24 4.26 4.26 0.05

Total "Other regions" 17.65 17.81 17.73 17.77 17.91 17.81 0.15

Total Non-OPEC production 50.81 51.43 51.40 51.70 52.28 51.71 0.89

Processing gains 2.17 2.21 2.21 2.21 2.21 2.21 0.04

Total Non-OPEC supply 52.98 53.64 53.61 53.91 54.49 53.92 0.93

Previous estimate 52.93 53.48 53.48 53.81 54.54 53.83 0.90

Revision 0.05 0.16 0.14 0.10 -0.05 0.09 0.03


Non-OPEC Oil Supply growth (mnbpd)


-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 Ch ina To talNon-Opec

2007 2008 2009 2010 2011 2012e 2013e


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February 2013 6

World Oil Demand

Reduction in European oil demand pull down world oil demand growth

World oil demand continued to recover, though at a slower pace. World oil demand increased by 0.76mnbpd in 2012 after an

increase of 0.9mnbd in 2011. European sovereign debt crisis and slow pace of recovery in the US kept a lid on world oil demand

growth. Crude oil demand declined by 0.24mnbbpd in North America. In the US, crude oil consumption was affected by weak

industrial production, high fuel prices and fuel switching towards natural gas. Meanwhile, Europe also witnessed a significant

decline of 0.51mnbpd in 2012 as austerity measures undertaken by the countries to deal with the debt crisis has taken its toll oncrude oil demand. On the other hand, China was the main oil demand growth driver accounting for 40.0% of oil demand growth.

China expected to account for 46.0% of oil demand growth in 2013

World oil demand is expected to increase by 0.77mnbpd in 2013 which is similar to the growth in 2012. Bulk of the world oil

demand growth is expected to come from China, Latin America and the Middle East region. Increase in Chinas oil demand is

expected to contribute around 46.0% to the total oil demand growth in 2013. Chinese economic growth rebounded 7.9%YoY in

4Q12 from 7.4%YoY in 3Q12 driving away fears of a hard landing. Chinese economy is expected to grow by 8.2% in 2013.

Oil demand (mnbpd) 2012 1Q13 2Q13 3Q13 4Q13 2013 Volume %

Americas 23.82 23.65 23.72 24.02 24.08 23.87 0.04 0.18

Europe 13.80 13.56 13.51 13.56 13.63 13.56 -0.24 -1.72

Asia Pacific 8.48 9.05 7.88 8.25 8.69 8.47 -0.02 -0.22

Total OECD 46.11 46.26 45.10 45.84 46.40 45.90 -0.21 -0.46

Other Asia 10.75 10.69 10.96 11.06 11.00 10.93 0.18 1.67

Latin America 6.26 6.14 6.37 6.63 6.50 6.41 0.15 2.47

Middle East 7.56 7.66 7.62 8.09 7.64 7.75 0.19 2.55

Africa 3.37 3.37 3.40 3.28 3.43 3.37 0.00 0.06

Total Dcs 27.94 27.86 28.34 29.07 28.58 28.46 0.53 1.89FSU 4.39 4.33 4.17 4.59 4.82 4.48 0.09 1.96

Other Europe 0.65 0.64 0.60 0.64 0.73 0.65 0.00 0.73

China 9.71 9.77 10.25 9.91 10.31 10.06 0.35 3.59

Total "Other regions" 14.75 14.74 15.01 15.13 15.86 15.19 0.44 2.98

Total world 88.80 88.86 88.46 90.04 90.84 89.55 0.76 0.85

Previous estimate 88.80 88.90 88.45 90.05 90.83 89.57 0.77 0.87

Revision 0.00 -0.05 0.00 -0.01 0.01 -0.01 -0.01 -0.01


World Oil Demand growth (mnbpd)


-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

NorthAmerica

WesternEurope

Total OECDMiddle East China Total DC's World

2007 2008 2009 2010 2011 2012e 2013e


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February 2013 7

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

380

390

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

170

180

190

200

210

220

230

240

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

100

120

140

160

180

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

1,020

1,040

1,060

1,080

1,100

1,120

1,140

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

1,320

1,340

1,360

1,380

1,400

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12 150

155

160

165

170

175

180

185

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12


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February 2013 8

Disclaimer

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oil market outlook 022013

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