oil prices outlook 2q18 - bbva research · oil prices outlook key messages 2 1. the geopolitical...
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Oil Prices Outlook
2Q18
United States
June, 2018
Oil Prices Outlook
Key Messages
2
1. The geopolitical premium marked the evolution of oil prices in 2Q18
2. OPEC may decide to boost production to compensate the shortfall left
by Iran and Venezuela
3. Prices will remain supported by robust demand from China, India and
the U.S.
4. We continue to expect convergence to long-term equilibrium as demand
growth converges to historical trend and U.S. export capacity expands
5. The main uncertainty to oil prices arises from the effect of subpar
CAPEX on supply
Oil Prices Outlook
The U.S. withdrawal from the nuclear agreement with
Iran has added a risk premium
Source: BBVA Research and Haver Analytics` 3
Crude oil prices($ per barrel)
60
65
70
75
80
85
03/2
1
03/2
3
03/2
5
03/2
7
03/2
9
03/3
1
04/0
2
04/0
4
04/0
6
04/0
8
04/1
0
04/1
2
04/1
4
04/1
6
04/1
8
04/2
0
04/2
2
04/2
4
04/2
6
04/2
8
04/3
0
05/0
2
05/0
4
05/0
6
05/0
8
05/1
0
05/1
2
05/1
4
05/1
6
05/1
8
05/2
0
05/2
2
05/2
4
05/2
6
05/2
8
05/3
0
06/0
1
2Q18 projected average
2Q18 actual average
May 8.
U.S. abandons the
nuclear deal with Iran
May 26.
Saudi Arabia and
Russia agree to
increase output
April 11.
Ballistic missiles fired by
Yemen’s Houthi rebels at Ryadh
and Jizan
April 10.
U.S. trims 2018
production
forecast
May 29.
OPEC may keep
output cuts through
the year
June 5.
U.S. asks OPEC to
increase production
by 1Mb/d
Oil Prices Outlook
The level of enforcement will determine Iran’s oil exports
Source: BBVA Research, Haver Analytics and FRED
Iran: crude oil exportsMillion barrels per day
4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Actual Limited enforcement Strong enforcement
U.S. sanctions +
full support of
allies = -1.5M b/d
U.S. sanctions +
limited support of
allies = -500K to -1M
b/d
Based on 2012 sanctions and the
current level of exports, around
540,000 b/d would be at risk of
losing access to international
markets
Lack of international support
makes the enforcement of
sanctions more difficult than in
2012
Saudi Arabia and other Gulf States
are seen as the best-placed to fill
the gap left by Iran
Oil Prices Outlook
Inventory data continues pointing to a tighter market
Source: BBVA Research and Haver Analytics 5
OECD Stocks of Petroleum(Vs. 5-year and 7-year average, million barrels)
Global stock change needed to balance (Million barrels per day)
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2015 2016 2017 2018
12mma
-400
-200
0
200
400
600
800
1000
2014 2015 2016 2017 2018
Deviation from 7-year average
Deviation from 5-year average
Oil Prices Outlook
Recent time spreads display mixed signals
Source: BBVA Research and Bloomberg 6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18
Brent time spreads(1-2 month, $/b)
WTI time spreads(1-2 month, $/b)
Oil Prices Outlook
Global demand remains supportive, driven by China, India
and the United States
Source: BBVA Research and Haver Analytics7
Oil product demand (YoY % change, million b/d)
Source: BBVA Research and Haver Analytics
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Western Europe United States China
India Total World (rhs)
Oil product demand (12-month MA, million b/d)
35
37
39
41
43
45
47
49
51
53
20
08
20
08
20
09
20
09
20
10
20
10
20
11
20
11
20
12
20
12
20
13
20
13
20
14
20
14
20
15
20
15
20
16
20
16
20
17
20
17
20
18
OECD non-OECD
Oil Prices Outlook
We expect demand growth to remain above average
Source: BBVA Research, IEA and OPEC8
Source: BBVA Research and Haver Analytics
Oil product demand (YoY change, million b/d)
Oil product demand (million b/d)
98.3
99.9
101.4
102.9104.3
105.6106.9
80
85
90
95
100
105
110
Actual
BBVA Research Forecast
1.61.6
1.5
1.41.3 1.3
1.3
0.8
1.0
1.2
1.4
1.6
1.8
2.0Actual BBVA Research Forecast
OPEC Forecasts Average 2008-17
IEA
Oil Prices Outlook
With 167% compliance rate, OPEC & partners have ample room
to cover any gap left by Iran, Angola and Venezuela
*Excluding Libya, Iran and Nigeria
Source: BBVA Research and Haver Analytics 9
OPEC+11 crude oil production* (Production at the wellhead, million b/d)
42.0
42.5
43.0
43.5
44.0
44.5
45.0
45.5
46.0
Jun-1
6
Aug-1
6
Oct-
16
De
c-1
6
Feb
-17
Apr-
17
Jun-1
7
Aug-1
7
Oct-
17
De
c-1
7
Feb
-18
Apr-
18
OPEC
-1000 -500 0 500
Saudi Arabia
Venezuela
Iraq
UAE
Angola
Iran
Kuwait
Qatar
Algeria
Gabon
Ecuador
Libya
Nigeria
-400 -200 0 200
Russia
Mexico
Azerbaijan
Malasya
Sudan
Brunei
Bahrain
South Sudan
Oman
Kazakhstan
Non-OPEC
OPEC+11 crude oil production*(Production at the wellhead, change since Dec 2016, thousand b/d)
* Libya, Iran and Nigeria were not part of the deal
Oil Prices Outlook
Involuntary cuts to Venezuela and Angola’s production have
helped OPEC to exceed its quotas
Source: BBVA Research & Haver Analytics10
0
20
40
60
80
100
120
140
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Wellhead production (lhs)Rig count (rhs)
Venezuela: oil production & rig count(million b/d and number)
A combination of low crude oil prices
and the mismanagement of the
country’s oil industry has led to
accelerated declines in production
Decreasing rig count suggests further
production declines in 2018-2019
If trends persist, production could fall
below one million barrels per day
Angola: oil production & rig count(million b/d and number)
0
5
10
15
20
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Wellhead production (lhs)
Rig count (rhs) Crude oil production is falling due to
lack of investments in naturally
declining offshore fields
Angola’s fields are costly to maintain
and there is no appetite from investors
given other alternatives
Oil Prices Outlook
OPEC spare capacity is enough to prevent a higher risk premium
Source: Energy Information Administration 11
0
1
2
3
4
5
6
7
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
OPEC spare production capacity(Million b/d)
Oil Prices Outlook
The Permian driving U.S. production to record-highs
Source: BBVA Research, Haver Analytics & Rystad Energy 12
8000
8400
8800
9200
9600
10000
10400
10800
11200
2015 2016 2017 2018
U.S. Estimated crude oil production (Thousand b/d)
U.S. Change in crude oil production(January 2017 to May 2018, million b/d)
0.00 0.20 0.40 0.60 0.80
Anadarko Tight Oil
Woodford Shale
Uinta-Piceance Tight
PRB Tight Oil
Austin Chalk Tight
Meramec Shale
Eagle Ford Shale
Bakken Shale
Niobrara Shale
Permian Midland Tight
Permian Delaware Tight
Oil Prices Outlook
However, transportation bottlenecks limit impact on
international prices
Source: BBVA Research, Haver Analytics and Bloomberg 13
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
Ma
r-1
7
Ma
y-1
7
Jul-1
7
Sep-1
7
No
v-1
7
Jan-1
8
Ma
r-1
8
U.S. Crude oil exports (Million b/d)
-14
-12
-10
-8
-6
-4
-2
0
2
4
Jan-1
7
Feb
-17
Ma
r-1
7
Apr-
17
Ma
y-1
7
Jun-1
7
Jul-1
7
Aug-1
7
Sep-1
7
Oct-
17
No
v-1
7
De
c-1
7
Jan-1
8
Feb
-18
Ma
r-1
8
Apr-
18
Ma
y-1
8
Jun-1
8
WTI Midland-Cushing differential ($/b)
Brent-WTI differential ($/b)
0
2
4
6
8
10
12
Jan-1
7
Feb
-17
Ma
r-1
7
Apr-
17
Ma
y-1
7
Jun-1
7
Jul-1
7
Aug-1
7
Sep-1
7
Oct-
17
No
v-1
7
De
c-1
7
Jan-1
8
Feb
-18
Ma
r-1
8
Apr-
18
Ma
y-1
8
Oil Prices Outlook
A significant upward shift in the long-term portion of the forward curve
highlights the potential impact of underinvestment
Source: BBVA Research, Bloomberg and Rystad 14
40
45
50
55
60
65
70
75
80
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
$U
SD
/bb
l
Months Ahead
06/06/18
1 month ago
3 months ago
6 months ago
0
100
200
300
400
500
600
700
800
900
1000
Capex Exploration Capex Opex
Global capital expenditures in crude oil (Billion USD)
Brent crude futures
Oil Prices Outlook
Investments will be needed to replace naturally declining
production
Source: Rystad Energy 15
Global liquids production by life cycle and breakeven price (Thousand b/d)
Dis
covere
d
Oil Prices Outlook
Oil prices will remain above the estimated long-term equilibrium
Source: BBVA Research 16
Crude oil prices forecast (Brent, $ per barrel, avg.)
0
20
40
60
80
100
120
Ma
r-1
4
Jun-1
4
Sep-1
4
De
c-1
4
Ma
r-1
5
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Jun-1
7
Sep-1
7
De
c-1
7
Ma
r-1
8
Jun-1
8
Sep-1
8
De
c-1
8
Ma
r-1
9
Jun-1
9
Sep-1
9
De
c-1
9
Ma
r-2
0
Jun-2
0
Sep-2
0
De
c-2
0
Ma
r-2
1
Jun-2
1
Sep-2
1
De
c-2
1
Ma
r-2
2
Jun-2
2
Sep-2
2
De
c-2
2
Actual Baseline (June 6, 2018)
72.1 70.264.9
60.8 60.0
Oil Prices Outlook
Consensus around $70/b for 2018-19; expectations for 2020-21
reflect large discrepancies
Source: BBVA Research, Bloomberg, EIA, Rystad Energy, OECD, The World Bank
17
Short-term forecasts(Brent, $/b)
0
20
40
60
80
100
120
140
160
2017 2018 2019
Actual
BBVA Forecasts
95% futures upper confidence interval
95% futures lower confidence interval
50
55
60
65
70
75
80
85
2018 2019 2020 2021 2022
BBVA Research (June) Bloomberg (June)
Rystad Energy (June) World Bank (April)
OECD (May) EIA (STEO, last)
Annual forecasts (Brent, $/b)
Oil Prices Outlook
2Q18
United States
June, 2018