WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame 2005 .
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Transcript of WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame 2005 .
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WHY ARE OIL PRICES SO HIGH?
David LongOxford Petroleum Research Associates
Flame 2005www.oxfordpetroleum.com
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Not speculation...
-
100,000
200,000
300,000
400,000
500,000
600,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Op
en In
tere
st (
Co
ntr
acts
)
0
10
20
30
40
50
60
WT
I Nea
rby
$/b
arre
l
Commercial
Non-commercial
Non-reporting
Long
Short
Source: CFTC, Nymex
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...but structural changeNYMEX WTI: NEARBY & FORWARD CURVES
10
15
20
25
30
35
40
45
50
55
Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05
$/b
bl
Source: Nymex
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Key questions
• Are we running out of oil?• Will strong oil demand persist?• Will Opec expand capacity?• What is the future for oil prices?
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Are we running out of oil?• No – plenty of oil liquids left to develop• But – remaining reserves concentrated in
Middle East and FSU• Non-Opec production excluding FSU and
unconventional oil is already on plateau• Non-Opec including FSU/unconventional
oil expected to peak around 2010• Middle East Opec will have to supply
most of the new oil to meet future demand growth
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Problem is not how much oil ...
billion barrelsCumulative production 701Known oil reserves 890Undiscovered 210 - 728Total (without growth) 1800 - 2319Reserves growth 0 - 684Total (with reserves growth) 1800 - 3003Heavy/extra-heavy oil 460 - 600
Bitumen/tar sands 300 - 400Total (with unconventional) 2560 – 4003Natural gas liquids ~200Oil liquids yet-to-be produced 2000 - 3500Oil shales ~14,000
Source: USGS, Campbell & Laherrere
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... but where it is
CUMULATIVE PRODUCTION
30%
9%
4%16%
27%
7%
7%
North America
South America
Europe
Former Soviet Union
Middle East
Africa
Asia Pacific
REMAINING & UNDISCOVERED
7%
6%
3%
17%
55%
7%5%
Source: USGS
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Growing supply gap ...
Source: PFC Energy
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... to be filled by Opec?
Source: IEA, World Energy Outlook, 2004
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Will strong demand persist?
• Recent acceleration in global oil demand• Huge potential of developing economies • But are high growth rates sustainable?
– limits on carbon emissions– supply security issues– who will provide the extra capacity?
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Accelerating demandGROWTH IN WORLD OIL DEMAND
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
mn
b/d
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
OECD Non-OECD ex FSU FSU World growth %
Source: IEA, Argus Fundamentals
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Following the same path?
Source: IEA, World Energy Outlook, 2004
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Sustainable growth?CHINA: OIL DEMAND FORECASTS
0
10
20
30
40
50
60
70
80
90
100
1965 1975 1985 1995 2005 2015 2025
mil
lio
n b
/d
China = US per capita demand by 2030
Current World oil demand
Past 5 years = 8% growth
Current US oil demand
Forecast = 4% growth
Source: BPSR, IMF, Opra
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Is supply secure?
Source: IEA, World Energy Outlook, 2004
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Will Opec expand capacity?
• Higher prices or bigger market share?• Low cost reserves favour bigger
market share• But market power favours higher oil
prices
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Price or market share?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1918 1928 1938 1948 1958 1968 1978 1988 1998
Sh
are
of
wo
rld
cru
de
pro
du
cti
on
0
10
20
30
40
50
60
70
80
90
100
$/b
arr
el
Non-Opec crude
Opec crude
Oil price ($ 2003)
Opec formed in 1960
Source: DeGolyer & MacNaughton, Opec, BPSR, Argus Fundamentals
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Low cost reserves = bigger share...
Known oil reserves
OpecNon-Opec
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...but market power = higher prices
Source: IEA, World Energy Outlook, 2004, Opra
OPEC OIL PRODUCTION & NET REVENUES*
0
10
20
30
40
50
60
70
2005 2010 2015 2020 2025 2030
Pro
du
ctio
n, m
illio
n b
/d
0
100
200
300
400
500
600
700
Rev
enu
es, $
bill
ion
(20
00$)
Net revenues - low price scenario
Net revenues - high price scenario
Production - high price scenario
Production - low price scenario
* after operating and investment costs
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What is the future for oil prices?
• Opec policies now favour high oil prices• No alternative to Middle East oil
reserves• Oil demand will be constrained by:
– high oil prices– carbon emission limits– supply security concerns
• Iraq remains a wild card
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WHY ARE OIL PRICES SO HIGH?
David LongOxford Petroleum Research Associates
Flame 2005www.oxfordpetroleum.com
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Downstream capacity shortage?
• Rising refinery utilisation rates• Widening quality differentials• Surging tanker rates
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Rising utilisation rates
WORLD (EX FSU): REFINERY CAPACITY & UTILISATION
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1980 1983 1986 1989 1992 1995 1998 2001 2004
tho
us
an
d b
/d
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Capacity
Throughputs
Utilisation
Source: BPSR, Argus Fundamentals
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Widening quality differentials
Source: Argus Fundamentals
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Surging tanker rates
Source: Argus Fundamentals