“Crude Oil Outlook” - International Energy Forum · 4. Crude Price Official Agencies Outlook....

Repsol Economic Research Department. Antonio Merino Chief Economist

“Crude Oil Outlook”

Seventh IEA_IEF_OPEC Symposium on Energy OutlooksIEF Headquarters

Riyadh, Saudi Arabia, February 2017

2

Discussion Points

Price Forecast

Demand Dynamics: Long term forecast and facts

Supply Dynamics: Integrated, Unconventional and OPEC

3

Discussion Points

Price Forecast



4

Crude Price Official Agencies Outlook

Price ForecastOil Price Scenarios

Source: International Energy Agency (IEA), U.S. Energy Information Administration, OPEC and Repsol Economic Research Department

40

50

60

70

80

90

100

110

120

130

2017 2018 2019 2020 2021 2022 2023

USD

$/B

bl

EIA Ref. (AEO 2017)*

EIA High R&T (AEO 2017)

EIA Low R&T (AEO 2017)

IEA (WEO 2016, NP Sc.)**

IEA (WEO 2016, CP Sc.)**

IEA (WEO 2016, 450 Sc.)**

OPEC (WOO 2016, RC)***

*** OPEC Reference Basket price

** Prices are calculated through lineal interpolation from IEA perspectives in the WEO2016. Nominal prices assume inflation of 2% per year from 2015. IEA forecasts OECD Crude oil import costs, which was 2.1 US$/Bbl below Brent in average in the 2006-2015 period. In this regard, 2.1 US$/Bbl is added to IEA estimation in nominal terms to obtain Brent perspectives.

* Short term prices from the EIA's Short Term Energy Outlook

5



40

50

60

70

80

90

100

110

120

130

2017 2018 2019 2020 2021 2022 2023

USD

$/B

bl

Mean

1 Standard Deviation



6



0

50

100

150

200

250

30020

17

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

USD

$/B

bl

Mean




7

Discussion Points

Price Forecast



8Source: UN and Repsol Research Department

Annual Growth of Working Age Population (%)

-1

0

1

2

3

World Africa Mid. East India Em.Asia*

Latin Am. China Em.Europe

DM

2000-15 2015-30

Demand Dynamics long-term population growth projection:

9

Oil Demand Growth forecast in the long term

Demand Dynamics In the long term, oil demand growth forecasts hoover around 0,7% -1%

Source: Different sources and Repsol Economic Research Department

-0,8%

-0,6%

-0,4%

-0,2%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

1,2%

1,4%

Ener

data

(201

6)

Woo

dMac

kenz

ie (2

016)

OPE

P (W

orld

Oil

Out

look

201

6)

STAT

OIL

(201

6)

EXXO

N (2

016)

BP (2

016)

EIA

(Int

erna

tiona

l Ene

rgy

Out

look

201

6)

PIRA

(201

6)

IEA

(Wor

ld E

nerg

yO

utlo

ok 2

016)

- BU

IEA

(Wor

ld E

nerg

yO

utlo

ok 2

016)

- N

PS

IEA

(Wor

ld E

nerg

yO

utlo

ok 2

016)

- 45

0 Sc

en

2015

-203

0 CA

GR

Crude demand growth (2015-2030 CAGR)

10Source: International Energy Agency (IEA), IMF and Repsol Economic Research Department

Global Demand and Economic Growth → Recent Development & Perspectives

2.2%

1.7%

1.5%

1.9%

1%

5,4%

4,2%

3,5%

3,3%

3,4%3,2%

3,1%

3,4%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Demand Growth

Avg. growth 1986-2004


Economic Growth

Demand Dynamics Demand growth is outstripping last years behavior at rates comparable to the 1986-2004 avg. growth. Lower prices → higher demand, moreover part of the increase in disposable income was used to reduce debt

11

Global Demand Growth → Recent Development & Perspectives

Source: International Energy Agency (IEA) and Repsol Economic Research Department

Semielasticity World Demand

∆ Oil prices

∆ GDP

OEF/Repsol -0,17 0,44

2.2%

1.7%

1.5%

1.9%

1%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Demand Growth



Demand Dynamics Demand growth is outstripping last years behavior at rates comparable to the 1986-2004 avg. growth. Lower prices → higher demand, moreover part of the increase in disposable income was used to reduce debt

12

Scenario 450: World Vehicle Park Perspective

Demand Dynamics: disruptive changes ahead? The total World Vehicle Park will virtually double from 1200 million vehicles in 2015 to 2100 million vehicles in 2040. Electric vehicles with 0,3% share in 2015 will increase to 30% in 2040 (around 710 million vehicles)

Source: Bernstein Energy, WEO 2016 (IEA) and Repsol Economic Research Department

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

Vehi

cle

Parc

(Bill

ion)

Electric VehicleOther

http://repsolnet/pubs/es_es/home/noticias/noticias/noticias/notavisos/_2012_05/planestrategico.aspx?Destacado=S

13

Discussion Points

Price Forecast



14Source: Bloomberg and Repsol Economic Research Department

Capex and production (moving average 4 quarters)

Supply Dynamics: integrated oil companiesCompanies “Top 42” Capex & Production quarterly data

19

22

25

28

31

34

37

40

43

20

32

44

56

68

80

92

104

1163Q

200

41Q

200

53Q

200

51Q

200

63Q

200

61Q

200

73Q

200

71Q

200

83Q

200

81Q

200

93Q

200

91Q

201

03Q

201

01Q

201

13Q

201

11Q

201

23Q

201

21Q

201

33Q

201

31Q

201

43Q

201

41Q

201

53Q

201

51Q

201

63Q

201

6

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

billi

ons

usd

Capex

Production (RHS)




19

22

25

28

31

34

37

40

43

20

32

44

56

68

80

92

104

116

3Q 0

5

1Q 0

6

3Q 0

6

1Q 0

7

3Q 0

7

1Q 0

8

3Q 0

8

1Q 0

9

3Q 0

9

1Q 1

0

3Q 1

0

1Q 1

1

3Q 1

1

1Q 1

2

3Q 1

2

1Q 1

3

3Q 1

3

1Q 1

4

3Q 1

4

1Q 1

5

3Q 1

5

1Q 1

6

3Q 1

6

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

billi

ons

usd

CapexProduction (RHS, delayed 8Q)

Supply Dynamics: integrated oil companiesCompanies “Top 42” Capex & Production quarterly data. (Lagging production 8 Q)




19

22

25

28

31

34

37

40

43

20

32

44

56

68

80

92

104

116

3Q 0

5

1Q 0

6

3Q 0

6

1Q 0

7

3Q 0

7

1Q 0

8

3Q 0

8

1Q 0

9

3Q 0

9

1Q 1

0

3Q 1

0

1Q 1

1

3Q 1

1

1Q 1

2

3Q 1

2

1Q 1

3

3Q 1

3

1Q 1

4

3Q 1

4

1Q 1

5

3Q 1

5

1Q 1

6

3Q 1

6

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

billi

ons

usd

CapexProduction (RHS, delayed 8Q)

Supply Dynamics: integrated oil companiesCompanies “Top 42” Capex & Production quarterly data. (Lagging production 8 Q)


17

Discussion Points

Price Forecast



18

Supply Dynamics: Unconventional in the U.S.Production per well has increased steadely ,considering the main oil U.S. plays aggregation

Source: Drilling Info and Repsol Economic Research Department

Monthly Maximum Production per New Oil Well in Main Shale Oil Plays

150

250

350

450

550

650

750

Feb-

12Ap

r-12

Jun-

12Au

g-12

Oct

-12

Dec-

12Fe

b-13

Apr-

13Ju

n-13

Aug-

13O

ct-1

3De

c-13

Feb-

14Ap

r-14

Jun-

14Au

g-14

Oct

-14

Dec-

14Fe

b-15

Apr-

15Ju

n-15

Aug-

15O

ct-1

5De

c-15

Feb-

16Ap

r-16

Jun-

16Au

g-16

Oct

-16

bbl/

d

DI / Repsol: Oil Production per Well

3 Month MA

Bakken + Eagle Ford + PermianWell weighted averageBakken + Eagle Ford + PermianWell weighted average

19Source: Drilling Info and Repsol Economic Research Department

Monthly Maximum Production per New Oil Well in Main Shale Oil Plays

150

Feb-

12Ap

r-12

Jun-

12Au

g-12

Oct

-12

Dec-

12Fe

b-13

Apr-

13Ju

n-13

Aug-

13O

ct-1

3De

c-13

Feb-

14Ap

r-14

Jun-

14Au

g-14

Oct

-14

Dec-

14Fe

b-15

Apr-

15Ju

n-15

Aug-

15O

ct-1

5De

c-15

Feb-

16Ap

r-16

Jun-

16Au

g-16

Oct

-16

bbl/

d (lo

garit

mic

sca

le)

DI / Repsol: Oil Production per Well

3 Month MA

Bakken + Eagle Ford + PermianWell weighted averageBakken + Eagle Ford + PermianWell weighted average

Supply Dynamics: Unconventional in the U.S.Production per well has increased steadely ,considering the main oil U.S. plays aggregation

5,0

5,5

6,0

6,5

7,0

7,5

8,03Q

200

6

1Q 2

007

3Q 2

007

1Q 2

008

3Q 2

008

1Q 2

009

3Q 2

009

1Q 2

010

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

Production


Production

Supply Dynamics: Unconventional in the US. Independent Oil CompaniesProduction growth during the frack revolution


20

40

60

80

100

120

140

5,0

5,5

6,0

6,5

7,0

7,5

8,03Q

200

6

1Q 2

007

3Q 2

007

1Q 2

008

3Q 2

008

1Q 2

009

3Q 2

009

1Q 2

010

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

usd/

barr

el

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

Production

Brent Price (RHS)


Production and Brent Price

Supply Dynamics: Independent OilProduction growth during the frack revolution demanded high and stable prices




25

40

55

70

85

100

115

130

145

5,5

6,0

6,5

7,0

7,5

8,0

8,5

9,0

9,51Q

201

0

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

1Q 2

016

3Q 2

016

1Q 2

017

3Q 2

017

1Q 2

017

3Q 2

017

1Q 2

018

3Q 2

018

usd/

barr

el

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

Production

Brent Price (RHS)

Supply Dynamics: Independent OilTo come back to past production growth we will need high prices.. but…




25

40

55

70

85

100

115

130

145

5,5

6,0

6,5

7,0

7,5

8,0

8,5

9,0

9,51Q

201

0

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

1Q 2

016

3Q 2

016

1Q 2

017

3Q 2

017

1Q 2

017

3Q 2

017

1Q 2

018

3Q 2

018

usd/

barr

el

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

Production

Brent Price (RHS)

Price Cost96 → 98 -56% -19%00 → 01 -47% -17%06 → 07 -22% -14%08 → 09 -70% -20%14 → 16 -70% -34%* From máx 2014 to min 2016

Supply Dynamics: Independent OilTo come back to past production growth we will need high prices.. But Due to cost reductions




25

40

55

70

85

100

115

130

145

5,5

6,0

6,5

7,0

7,5

8,0

8,5

9,0

9,51Q

201

0

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

1Q 2

016

3Q 2

016

1Q 2

017

3Q 2

017

1Q 2

017

3Q 2

017

1Q 2

018

3Q 2

018

usd/

barr

el

mill

ions

of b

arre

ls o

f oil

equi

vale

nt p

er d

ay

Production

Brent Price (RHS)

Supply Dynamics: Independent OilTo come back to past production growth, due to cost reduction we will need other prices. The rate of growth in productivity per well remains stable….


20

40

60

80

100

120

140

160

Nov

-02

Nov

-03

Nov

-04

Nov

-05

Nov

-06

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Dece

mbe

r 201

2=10

0

WTI Spot

PPI Drilling oil and gas wells

Monthly Crude Oil Price and PPI Drilling Oil and Gas Wells

Supply Dynamics: Independent OilHowever, E&P costs and oil prices co-move. And some of the reduction in costs should be considered cyclical no STRUCTURAL

25Source: Thomson Reuters and Repsol Economic Research Department

Price Cost96 → 98 -56% -19%00 → 01 -47% -17%06 → 07 -22% -14%08 → 09 -70% -20%14 → 16 -70% -34%* From máx 2014 to min 2016


Capex, Operation Cash Flow, Asset Sales and Financial needs(moving average 4 quarters)

Supply Dynamics: Unconventional in the U.S.. Independent Comp.Financing needs: divestments and Operating cash flows of independent oil companies

-15

-10

-5

0

5

10

15

20

25

30

35

3Q 2

006

1Q 2

007

3Q 2

007

1Q 2

008

3Q 2

008

1Q 2

009

3Q 2

009

1Q 2

010

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

billio

ns u

sd

Financial needsOperating Cash FlowAsset SalesCapex



Organic Capex as % of Operating Cash Flow (moving average 4 quarters)

70%

90%

110%

130%

150%

170%

190%

210%

230%

250%3Q

200

6

1Q 2

007

3Q 2

007

1Q 2

008

3Q 2

008

1Q 2

009

3Q 2

009

1Q 2

010

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

Org

anic

Cap

ex a

s %

of O

pera

ntin

g C

ash

Flow

Supply Dynamics: Independent oil and unconventional in the U.S.The long term sustainability: CAPEX and Operating CF



Organic Capex and CF from Investment as % of Operating Cash Flow(moving average 4 quarters)

Company Analysis: Independent Oil The real sustainability: Operating Cash Flow and CF from Investment

50%

70%

90%

110%

130%

150%

170%

190%

210%

230%

250%3Q

200

6

1Q 2

007

3Q 2

007

1Q 2

008

3Q 2

008

1Q 2

009

3Q 2

009

1Q 2

010

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

% o

f Ope

rant

ing

Cas

h Fl

ow

Organic Capex

CF Investment


29

Discussion Points

Price Forecast



20.8

11.4

10.7

2.4

2

1.7

0.5

0.2

-0.9

-1

-2.7

-8

-20 -10 0 10 20 30

2005-14

30Source: Oxford Economics and Repsol Research Department

Public Balance (%GDP), average 2005-14 and 2016

Supply Dynamics: OPEC and net oil exportersThe fiscal accounts are the drivers

-7.3

-8.2

-16.8

-6.1

-17.6

-3.4

-4.4

-18.4

-6.9

-5.9

-2.7

-11.5

-20 -10 0 10 20 30

2005-14 2016


Public Balance (%GDP), average 2005-14 and 2016


5.4

2.3

1.5

-7.8

-7.5

-4.5

-3.9

-0.7

-0.7

-2.4

-2.4

-5.5

-20 -10 0 10 20 30

2005-14 2026 (Brent futures)Brent Price

Futures 2017 56.52018 56.52019 56.02020 56.02021 57.02022 57.52023 58.52024 59.52025 60.52026 61.5


Public Balance (%GDP), average 2005-14 and 2026 (Brent Futures price)


8.4

2.3

6.1

0.1

-7.2

0.4

-2.2

9.0

1.8

-1.3

0.9

1.0

-20 -10 0 10 20 30

2005-14 2026 (IEA NP)Brent

Price IEA NP

2017 55.42018 66.32019 77.62020 89.32021 94.72022 100.22023 105.92024 108.02025 110.52026 112.8


Public Balance (%GDP), average 2005-14 and 2026 (Brent IEA NP Scenario Price)


34

Main messages

Uncertain oil price outlook, but most forecaster agree on an increasing oil

price path

Demand data support high sensitivity to prices and continuous growth

Conventional production depend on investments and investment on

operating cash flows and cash flows on prices, these facts implies higher

prices are needed

Unconventional revolution is marching on as the same productivity speed

than in the past. It will need higher prices and also be aware of the

cyclality of cost evolution

Finally, most oil exporters have an incentive to improve its finals account

through production agreements

Thank you

© Repsol Economic Research Department

Date post:	12-Apr-2018
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