Oil Market Update
January 2020
2
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Disclaimer
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Market Summary
• Brent is currently trading around $59/bbl, falling following the unfortunate outbreak
of the Novel Coronavirus (2019-nCoV) in China.
• Brent hit highs of $71/bbl in early January after an Iranian missile strike on Iraqi military
bases hosting US troops. This followed a US airstrike in Iraq that killed a top Iranian military
commander, Qassem Soleimani. Prices fell as the US and Iran attempted to de-escalate
tension in the region.
• Phase 1 of the US-China trade deal was signed on 15th January. Uncertainty remains around
the timeline of Phase 2, with talks yet to begin.
• The Vienna Alliance of OPEC and non-OPEC producers met in December and agreed to
deepen existing output cuts by 500kbd to 1.7mbd, plus an additional voluntary cut of 400kbd
by Saudi Arabia, to the end of March 2020. It was recently announced that the next meeting
may be moved forward from 5th March 2020 if oil demand in China is significantly impacted
by the spread of the Novel Coronavirus.
• IMO 2020 has led to a volatile quarter for fuel oil pricing, as HSFO hit lows of -$35/bbl
against Brent and at the end of January is trading higher at -$17/bbl due to reduced supply
and increased coking demand. The HSFO/VLSFO price spread averaged $36/bbl over 4Q19,
with VLSFO cracks trading very strongly at +$12/bbl. MGO uptake is slower than expected as
shipowners have shown a preference for VLSFO so far
• Refining margins (BP RMM) fell from a high of $19/bbl at the start of October to a low of
$7/bbl during December. The margin has since recovered to $9/bbl, but is still significantly
below the 2019 average of $13/bbl.Source: BP Internal, S&P Global Platts ®, ICE, IEA
4
Crude prices fall following the Novel Coronavirus outbreak
Source: NYMEX, ICE
Global Crude Prices
Futures as of 28/01/2020
• Crude prices have recently fallen following the unfortunate outbreak of the Novel Coronavirus in China• After relatively high crude prices in 2Q19, prices faced downward pressure in Q3 and Q4 following evidence of
slower economic expansion and below expectation oil demand growth.• The ongoing geopolitical tensions in the Middle East and US airstrikes in Iraq increased the risk premium on oil
supply in mid-January.
20
30
40
50
60
70
80
2015 2016 2017 2018 2019 2020
$/bbl
WTI Brent WTI Futures Brent Futures Dubai
5
Brent-WTI differential traded within a narrow range in Q4 2019
Source: NYMEX, ICE, S&P Global Platts ®Futures as of 15/01/2020
Brent-WTI spread
• The Brent-WTI differential remained narrow at around $6/bbl in 4Q19.• WTI has strengthened from significant stock draws at Cushing as increased pipeline capacity has reduced the
bottleneck of crude supply to US Gulf Coast refineries.
-2
0
2
4
6
8
10
12
14
16
2014 2015 2016 2017 2018 2019 2020
$/bbl
Brent-WTI Brent-WTI Futures
6
Net speculative length increased in Q4 2019
Net Speculative Length (2012-2019)
Source: ICE
Net Speculative Length (2017-2019)
• NSL rose to the highest levels since May-19 at 400k contracts in Dec-19, a sharp rise of 200k since Oct-19. • Contracts have risen further in early 2020 to 425k following the US airstrike killing a top Iranian military
commander and the later retaliation strikes on a US base in Iraq. • Contracts volume is now similar to the average levels observed in 2017 and 2018.• The impact on NSL of the Novel Coronavirus outbreak is yet to be seen.
25
45
65
85
105
125
145
0
100
200
300
400
500
600
700
2012 2013 2014 2015 2016 2017 2018 2019 2020
$/bbl
Thousands of contracts
Brent Net Spec Length (LHS) Brent Price (RHS)
25
45
65
85
105
125
145
0
100
200
300
400
500
600
700
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20
Thousands of contracts
$/bbl
Brent Net Spec Length (LHS) Brent Price (RHS)
7
OPEC+ cut extra 500kbd of oil supply for 1Q 2020, taking the announced cut to 1.7mbd
Source: IEA, S&P Global Platts ®
Russia Crude SupplySaudi Crude SupplyOPEC Crude Supply
NB: assumes 100% of production cut applied to crude oil
• The new 1.7mbd OPEC total cut, plus an additional voluntary 400kbd cut from Saudi Arabia, took effect on 1st Jan-20, and requires significant cuts from most member states. Reports suggest an extension past Mar-20 and deeper supply cuts are possible if oil price is significantly impacted by the spread of the Novel Coronavirus.
• Compliance in Dec-19 was 181%, an increase from Nov-19 at 154%, driven primarily by Saudi Arabia’s overcompliance (296% and 228% in respectively).
• OPEC production was 2.4mbd lower in 2019 compared to 2018.
28
30
32
34
Ja
n
Fe
b
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
No
v
De
cmbd
7
8
9
10
11
12
Ja
n
Fe
b
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
No
v
De
c
mbd
Th
ou
san
ds
9.3
9.6
9.9
10.2
10.5
Ja
n
Fe
b
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
No
v
De
c
mbd
'09-'13 2014 2015 2016 2017 2018 2019 Announced cut
8
Iranian and Venezuelan output remains low
Source: IEA
Iran Crude Supply Venezuela Crude Supply
• Iranian crude supply remained low at 2mbd in Dec-19, as US sanctions suppressed the country’s oil exports.• Iranian production sunk to 2mbd in 2019, the lowest level since 1988, while Venezuela also fell to 870kbd.• The IEA states that Iranian crude exports stood at 300kbd, around 2.5mbd lower than before Washington withdrew
from the JCPOA.• Venezuelan output reached 850kbd in Dec-19, due to ongoing operational difficulties and the pressure of
international sanctions.
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
2.0
2.5
3.0
3.5
4.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
Min '09-'13 range 2014 2015 2016 2017 2018 2019
9
However, US production growth continues to offset losses elsewhere
Source: IEA, EIA
US Crude Supply
• US crude supply continues to reach new highs, hitting over 12.6mbd in Dec-19. The latest weekly DOE statistics report US crude supply at 13mbd.
• In Dec-19, the US produced 1mbd more crude than Russia and 3mbd more than Saudi Arabia, the two next largest oil producers.
• Cushing stocks fell in 4Q19 and remain significantly lower than 2016/2017 levels.
5
7
9
11
13
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016
2017 2018 2019
0
10
20
30
40
50
60
70
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mb
2014 2015 2016 2017
2018 2019 2020
Cushing Stocks
10
Average production per rig
Total DUCs
DPR Regions (Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara & Permian) do not represent all hydrocarbon producing areas
US rig count decreases whilst production continues to grow• Significant productivity gains have allowed for an increase in US production despite the rig count decreasing.• Despite the rig count falling by 23% between Jan-19 and Nov-19, production has increased 8% and average
production per rig hit 819 bpd in Nov-19. Baker Hughes reports a slight increase in rig count during Jan-20.• In the same period, total Drilled but Uncompleted (DUC) wells decreased by 9% in the major shale regions.
Rig count vs. crude production
Source: EIA
5000
6000
7000
8000
9000
2016 2017 2018 2019 2020
No. of wells
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
2
4
6
8
10
12
14
2008 2010 2012 2014 2016 2018 2020
No. of rigsmbd
Anadarko Region Appalachia RegionBakken Region Eagle Ford RegionHaynesville Region Niobrara RegionPermian Region Total US productionTotal Rig Count
0
200
400
600
800
1,000
2011 2013 2015 2017 2019
bpd
11
Oil demand growth in 2019 was below 2018 levels
Y/Y total products demand growth Y/Y OECD products demand growth
Source: IEA
• Global total oil demand rose 955kbd y-o-y to 101mbd in Oct-19 (the latest month for which complete figures are available), confirming the acceleration in annual growth rate seen in 2H19.
• Despite falling demand in OECD, many non-OECD countries demand have grown strongly, including China (+720kbd in October), Saudi Arabia (+290kbd in October) and Russia (+215kbd in October) according to IEA data.
-600
-400
-200
0
200
400
600
800
2018 2019
kbd
LPG and Ethane Naphtha Motor Gasoline
Jet and Kerosene Diesel Gasoil
Residual Fuel Other Products Total Products
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2018 2019
mbd
OECD Non-OECD Total
12
11.8
12.6
13.4
14.2
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
OECD Product Demand
Source: IEA
Ethane and LPG Naphtha
Gasoline Jet/Kerosene
Diesel/Gasoil Residuals
OECD product demand presents a mixed story• OECD oil consumption fell in Oct-20 driven by mediocre economic growth, warm weather and weak
petrochemical feedstock demand. Ethane/LPG, naphtha and jet demand recovered somewhat in Nov/Dec-19.
• Gasoline and diesel/gasoil demand remained approximately unchanged from 2018 levels in 2019, while residuals demand fell and ethane/LPG demand grew moderately year-on-year.
4.2
4.8
5.4
6.0
6.6
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
2.9
3.2
3.5
3.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
13.0
13.8
14.6
15.4
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
3.4
3.8
4.2
4.6
5.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
1.6
2.0
2.4
2.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016 2017 2018 2019
13
OECD refinery runs were impacted by higher than average TARs in 2019
US crude runs
Source: EIA, IEA
OECD crude runs
• US crude runs increased in 4Q19 in line with the 2017/2018 trend, yet have remained down year on year.
• Total OECD crude runs have also fallen year-on-year, down by over 800kbd in Oct-19.
13
14
15
16
17
18
19
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
Th
ou
san
ds
34
36
38
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mbd
'09-'13 range 2014 2015 2016 2017 2018 2019
14
Total OECD crude stock levels remain similar to 2018 levels
Total OECD Crude Stocks Regional OECD Total Crude Stocks
Source: IEA
• OECD crude stocks built by over 45mb from Jan-May 2019, returning to the level they were 12 months earlier.
• Stocks have since decreased over 3Q19 and built in 4Q19, in line with seasonal norms.
• OECD crude stocks trends are not uniform globally; stocks remain at higher than historical norms in Europe and lower than historical norms in Asia.
2,100
2,300
2,500
2,700
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mb
'09-'13 range 2014 2015
2016 2017 2018
2019
900
1000
1100
1200
1300
1400
500
550
600
650
700
2012 2013 2014 2015 2016 2017 2018 2019 2020
mbmb
OECD Asia Oceania (LHS) OECD Europe (LHS)
OECD Americas (RHS)
15
OECD product stocks fall in 4Q19 following seasonal trends• OECD product stocks fell by 70mb between Sep-19 and Nov-19, reversing most the build that occurred earlier in
the year.• In Oct/Nov-19, middle distillates and other products contributed to most the stock fall, with a small increase in
gasoline stocks, reversing the changes observed in 3Q19.
OECD Total Product Stocks OECD Total Product Stock Change
Source: IEA
1,500
1,600
1,700
1,800
1,900
2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mb
'09-'13 range 2014 20152016 2017 20182019
-80
-60
-40
-20
0
20
40
60
80
Nov-18 Feb-19 May-19 Aug-19 Nov-19
Monthly change (mb)
Motor gasoline Middle distillates
Residual fuel oil Other products
16
European products market volatile in run up to IMO 2020
Product Cracks (NWE FOB)
Source: S&P Global Platts ®
• The price of HSFO fell to a low of -$35/bbl at the end of Nov-19, as demand for HSFO fell as a result of the IMO 2020 regulations. HSFO has since recovered to -$17/bbl following lower refinery supply and new demand from coking refineries.
• VLSFO demand and cracks have increased significantly since Sep-19, with cracks averaging +$9/bbl in 4Q19• Diesel and jet cracks fell during 4Q19 following low industrial demand and the weak macroeconomic
environment, but recovered during Dec-19 to +$15/bbl and +$16/bbl respectively.
-40
-30
-20
-10
0
10
20
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
$/bbl
Naphtha Gasoline Jet Diesel HSFO VLSFO
17
IMO 2020 has had a significant impact on the price of different shipping fuels
Product prices (NWE FOB)
Source: S&P Global Platts ®
• VLSFO pricing has rallied relative to MGO since Dec-19, and has averaged only a $50/ton discount since 1st Jan 2020.
• The price spread between VLSFO and HSFO widened from $50/ton in 1Q19 to $250/ton in 4Q19.
0
100
200
300
400
500
600
700
800
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20
$/MT
VLSFO (Europe) MGO (Europe) HSFO (Europe)
18
Refinery margins fell in Q4 2019 on lower gasoline and diesel cracks• Global Refinery Marker Margins (RMM) steadily fell from a high of $20 in Oct-19 to $7 during Dec-19• During 4Q19, gasoline and diesel cracks fell $7/bbl and $5/bbl respectively following the weak macroeconomic
environment and low industrial demand.
BP Global Refining Marker Margin (RMM)
Source: BP Analysis
The BP Global Refining Marker Margin (RMM) is a simplified indicator that reflects the margins achieved on gasoline and diesel only. The RMM may not be representative of the margin achieved by BP in any period because of BP’s particular refinery configurations and crude and product slates.
0
5
10
15
20
25
Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Oct 19 Jan 20
$/bbl
Quarterly Average
19
Global refinery margins were unchanged year on year• Global Refinery Marker Margin (RMM) averaged $13/bbl in both 2018 and 2019.• Gasoline cracks fell slightly and diesel cracks increased marginally in Europe in 2019 compared to the previous
year.• RMM has been comparatively low in 2020 to date due to suppressed gasoline values.
Global annual average Refinery Margin Marker (RMM)
Source: BP Analysis, ICE, S&P Global Platts ®
Annual average NWE Gasoline and Diesel cracks
11
99
14
11
12
87
20
17
16
15
10
12
15 15
0
5
10
15
20
25
2012 2013 2014 2015 2016 2017 2018 2019
$/bbl
Gasoline Diesel
19
1514
17
12
1413 13
0
5
10
15
20
25
2012 2013 2014 2015 2016 2017 2018 2019
$/bbl
20
Upcoming events
• OPEC are due to meet in Vienna on 5th March 2020, and will be joined by other members
of OPEC+ on 6th March 2020.
o The meeting will provide an opportunity to assess the extent to which their
production cut has succeeded in rebalancing the market, and to discuss production
plans for 2020.
• United States presidential election is scheduled for November 2020.