© 2015 Platts, McGraw Hill Financial. All rights reserved.

Joel Hanley Editorial Director, Oil

Aftershock – Oil Markets After The Price Fall

Aftershock – Oil Markets After The Price Fall

• Causes and effects of the 2014/15 crude price crash

• New crude trade trends

• Impact on European refiners

2

Dated Brent back below $50/barrel

3

0

20

40

60

80

100

120

140

160

Source: Platts Data

OPEC decision not to cut output

40

50

60

70

80

90

100

110

120

Dated Brent (yearly average)

Front month WTI (yearly average)

Yearly averages

4 Source: NYMEX, Platts

111.64 108.66

98.95

92.91

55.91

51.27

94.15 95.05

Impact on companies

• CNOOC closing its oil trading division - Nexen Energy

• Shell cuts capital investments by $15bn

• Chevron to trim spending by 13%

• Exxon Mobil to reduce CAPEX by 12% in 2015

• Schlumberger to lay off 20,000 employees

• Baker Hughes to reduce headcount by 7,000

• Noble Energy cut its capital expenditure plans by 40%

• Industry consolidation: Shell offers $70bn to acquire BG

• But: Vitol’s annual profits rebound to $1.35bn – highest since 2011 – as volatility returns

5 Source: Financial Times, Platts, Bloomberg, Reuters

Market structure signals surplus

6

-2

-1,5

-1

-0,5

0

0,5

1

1,5

$

WTI M1-M2

Brent M1-M2

CONTANGO

BACKWARDATION

Source: ICE , NYMEX

The Big Three

7

7

8

9

10

11

12

13

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Миллионы

Russia Saudi Arabia United States

58%

59%

60%

61%

62%Non-OPEC

Global oil supply balance – OPEC/non-OPEC

8 Source: EIA

38%

39%

40%

41%

42%

43%OPEC

US rig count vs. oil production

9 Source: Bloomberg, EIA, Baker Hughes

650

850

1050

1250

1450

1650

5

5,5

6

6,5

7

7,5

8

8,5

9

9,5

Rig C

ou

nt

M b

/d

U.S. Field Production of Crude Oil Oil rigs

154%

63%

22%/ 69%

Marcellus

Oil and/or Liquids

Play

US producers’ breakeven prices around $40

Apr 2015 Price Assumptions: Gas = 12 month forward average curve for each regional pricing point (range $1.92 - $2.91/Mcf) Oil = 12 month forward average WTI +/- differential (range $38.82-$54.24/barrel) NGLs = weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $19.25-$26.36/barrel)

Source: Bentek

$29 $39 Utica Uinta $49

Bakken $38

Niobrara

$38

Miss Lime $43

Granite Wash $57

Permian Delaware $41

Eagle Ford Oil/Wet

$40/ $47

$40/ $47

$55

Cana-Wood

$40/$45

Cleve/Tonk

US oil exports rising

11 Source: EIA

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

2009 2010 2011 2012 2013 2014

Миллионы

Other liquids

Finished products

NGL/LPG

Crude oil

Tight Oil Pushes Nigeria out of US

12

Source: EIA

No Nigerian crude sold into the US all month

Thousand b/d

Swelling Inventories

320

340

360

380

400

420

440

460

480

500

MM

bb

ls

US Crude Stocks (excl. SPR)

5 Year Min-Max Range Avg. 2010-2014 2013 2014 2015

Source: EIA 13

Mid-2015 Inventories

86 MMB Above Last Year

102 MMB Above 5 Year

Average

European Refining Margins Soar

14

-$6,00

-$4,00

-$2,00

$0,00

$2,00

$4,00

$6,00

$8,00

$10,00

$12,00

Urals ARA Cracking Netback Margin

Forties ARA Cracking Netback Margin

Ekofisk ARA Cracking Netback Margin

-$6,00

-$4,00

-$2,00

$0,00

$2,00

$4,00

$6,00

$8,00

$10,00

$12,00

Urals Italy Cracking Netback Margin

CPC Blend Italy Cracking Netback Margin

Azeri Light Italy Cracking Netback Margin

Source: Platts Data, Turner Mason

US gasoline consumption

15 Source: EIA

7,5

8

8,5

9

9,5

M b

/d

Budget impact ($/b)

16 Source: IMF, Deutsche Bank, Platts

157

119

96

49

64 74

125

107

87

50 52

68

Yemen

Algeria Iran

Oman

Libya

UAE

Qatar

Kuwait

Saudi Arabia

Mexico Nigeria

Iraq

Norway, Angola 40

100 Russia

Recent Brent Price

Iran readies to unleash more barrels

17

Looking to raise output to 4 mil b/d from current 2.85 mil b/d within a year of sanctions being lifted

“...Some countries take other members’ shares and if others want to come back to

the market, they must fight...not a problem. We fight and won't let go of one barrel of our previous share.“ – Bijan Zanganeh, March 2015

1.9 million b/d of Europe refinery closures

Year Refinery Output (b/d) Owner Status

2009 Dunkirk, France 140,000 Total Permanent

Wilhelmshaven, Germany 260,000 Hestya Energy Permanent

Teesside, UK 117,000 Petroplus Permanent

2010 Reichstett, France 85,000 Petroplus Permanent

2011 Cremona, Italy 90,000 Tamoil Permanent

2012 Rome, Italy 86,000 TotalERG Permanent

Petit Couronne, France 162,000 Petroplus Permanent

Berre l'Etang, France 105,000 LyondellBasel Indefinite

Coryton, UK 220,000 Petroplus Permanent

Arpechim, Romania 70,000 Petrom Permanent

Paramo, Czech Republic 20,000 Unipetrol Permanent

Lisichansk, Ukraine 160,000 Rosneft Indefinite

2013 Porto Marghera, Italy 80,000 Eni Permanent

Tenerife, Canary Islands 87,000 Cepsa Indefinite

Harburg, Germany 110,000 Shell Permanent

2014 Odessa, Ukraine 56,000 Vetek Indefinite

Mantova, Italy 55,000 MOL Permanent

Source: Platts, Company Data

More European refineries at risk

Source: Market sources

Whitegate

Lindsey

Grangemouth

La Mede

Donges

Q8 Europoort

Stanlow

Milford

Livorno

Gela

Taranto

Falconara

Thessaloniki

Sisak

Lietuva

Fredericia

Kralupy

Petrotel

Collombey

Oil Price in Search of a New Normal?

20

$0

$20

$40

$60

$80

$100

$120

$1400

2.0

1.2

01

4

02

.02

.20

14

02

.03

.20

14

02

.04

.20

14

02

.05

.20

14

02

.06

.20

14

02

.07

.20

14

02

.08

.20

14

02

.09

.20

14

02

.10

.20

14

02

.11

.20

14

02

.12

.20

14

02

.01

.20

15

02

.02

.20

15

02

.03

.20

15

02

.04

.20

15

02

.05

.20

15

02

.06

.20

15

02

.07

.20

15

02

.08

.20

15

Dated Brent, $/b

Chinese stock market crisis Jun 12

?

$50-70/b

Islamic State captures Baiji refinery Jun 24

Saudi Arabia lowers Asia OSPs Oct 1

OPEC retains 30 mil b/d target Nov 27

Drop in US rig count accelerates end-Jan

Source: Platts Data

Platts Dated Brent Assessment, $/b

$45-70/b?

Supply and demand drivers

21

US shale resilience amid price plunge Lack of OPEC response

Iraq output high despite ISIL 1 mil b/d additional supply from Iran?

ISIL activity in Iraq and Syria Libyan outages and civil war

Strife in Yemen, Sudan, Nigeria Plummeting investment in Russian oil

Economic woes in Brazil, Russia, China Record high commercial stockpiles Commodity-dependent economy demand

Resurgent US gasoline demand Asia, Middle East demand growth Chinese strategic stockpiling? Near-record low crude oil prices

Supply Demand

© 2015 Platts, McGraw Hill Financial. All rights reserved.

Joel Hanley Editorial Director, Oil joel.hanley@platts.com +44 (0)20 7176 6142