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Since 2007, Roland Berger has published an annual review of available oil price forecasts
Last year's results
USD 55 forecast1) for 2017
Top-3 most accurate forecasting countries
72
52
42
Ø 55
Saudi Arabia
Nigeria
Iraq
23
19
18Iraq
Ø 20
Saudi Arabia
Nigeria
Period 1999-2017
Average absolute year-on-year oil price forecasting1) error [%]
> Since 2007, Roland Berger has published a yearly review of the oil price forecast
> Major oil exporting countries use a forecasted value of the oil price in their annual budgets
> We have studied the forecasting track records of the ten largest oil exporting countries from 1999 to 2017
> The budgeted oil prices of the top-3 most accurate countries are used to forecast the oil price for the year ahead
> National oil price forecasts are compared to forecasts from the major energy institutions: NYMEX, EIA and OECD
Roland Berger study of oil price forecasts – February 2018, WTI based
Source: Roland Berger
1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015)
3
In addition to analyzing forecasting accuracy, Roland Berger's annual review examines current market dynamics
2 Analysis of the accuracy of countries and institutions as forecasters of the oil price in 2017 and aggregate over the last years
Accuracy of oil price forecasts
Elements of this year's study
1 Oil price development & market dynamics of 2017 Analysis of 2017
3 Future oil prices
Forecast of the 2018 oil price based on national and institutional forecasts
Analysis of market dynamics for future oil supply and demand
5
USD 55
Top-3
forecasts
In 2017, the average barrel price was USD 51/bbl, slightly lower than the USD 55/bbl forecasted by the top-3 forecasters
Source: EIA; Roland Berger
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
2016 2017 2012 2010 2018 2015 2008 2007 2006 2014 2013 2009 2011
51
Development of monthly WTI averages [USD/bbl], Jan 2006 – Dec 2017
2017 average
1 Analysis of 2017
6
Both supply and demand grew in 2017 – For the first time since 2013, 2017 saw a consistent period of undersupply
Oversupply Undersupply
Source: EIA; Roland Berger
85
90
95
100
2017 2014 2015 2012 2016 2013
Global supply and demand of oil and net differential [m bbl/day]
Total global supply Total global consumption
-0.5
0.0
-0.6
0.9
-0.4 -0.4
Net change
-0.3
0.1 0.6
0.0
-1.2 -0.5 -0.4
-1.3 -0.8
1.3
2015
0.8 1.5
2013 2012
1.7
2017
1.5 1.3
-0.7
0.4
2014
-0.8
2016
1 Analysis of 2017
7
This undersupply was driven by OPEC's extended production quota, which they are reportedly adhering to
33.5
24.9
28.9
24.9
2009
32.4
2016 2017
32.5
38.8
33.3
30.0
2015
35.5
32.7 31.1 30.9
37.6
2013 2011
36.0
30.0 30.0
2012 2014
31.9 31.8
37.0
30.0 30.0
36.0
30.0
2010
34.6
29.2
OPEC production quota and actual production [m bbl/day]
Source: OPEC; BP Statistical Review of World Energy 2017; Roland Berger
Quota Production – OPEC reports Production – BP statistical review
Deviation from quota
n/a
OPEC data -0.4%
BP data
16.4% 17.7% 10.9%
n/a
1 Analysis of 2017
3.7% 8.9% 6.1% 3.0% 6.2%
20.1% 25.3% 29.4% 34.8% 39.2% 18.3% 23.3% 20.1%
8
Overall, OPEC complied with the quota – Libya and Nigeria were excluded from the quota and increased production significantly
Source: Zero Hedge; OPEC; Roland Berger
OPEC oil production and difference with quota
OPEC oil production 2017 ['000 bbl/day]
618
390
211
153
522
607
817
200
135
531
Venezuela 1,916 1,972
UAE 2,915
1,660 Nigeria2) 1,556
Kuwait 2,708
Libya2)
10,058
2,707
Iraq 4,445
9,953
Equatorial Guinea1)
1,639
Gabon1)
Ecudaor
4,351
1,039 1,043
3,797 Iran 3,811
1,673
Algeria
Angola
Saudi Arabia 2,874
Qatar
1) Quota not published; estimated based on overall 4.6% production cut; 2) Excluded from quota due to internal conflicts. 2016 production shown as quota
[%]
0.4% 4
-2.0% -34
9
-18
-11
14
94
427
104
1
Difference with quota ['000 bbl/day]
-11
41
-56
-105
Quota Production 2017 Production 2016
1 Analysis of 2017
1.7%
-11.6%
-5.1%
0.4%
2.2%
109.5%
6.7%
0.0%
-1.8%
1.4%
-2.8%
-1.0%
9
0
50
100
150
0
50
100
150
The OPEC production decline was compensated by an increase in swing capacity from US shale oil, which dampened prices
Source: EIA; Rystad Energy; BP Statistical Review of World Energy 2017; Roland Berger
US shale oil production ['000 bbl/day]
WTI price and shale oil profitability [USD/bbl]
Profitability and growth of US shale oil
1 Analysis of 2017
10,073
2,948
7,125
2012
8,894
2,078
6,816
2011
7,862
1,242
6,620
2010
7,549
797
6,753
2009
7,263
603
7,817
2008
6,784
524
6,260
Shale
Other
2017 2016
12,354
4,241
8,113
2015
12,757
4,582
8,175
2014
11,779
3,962
2013
6,660
n/a
Profitability of shale oil US shale oil production Indicative break-even price of shale oil
10
The growth of US (shale) oil production by ~5.6 m bbl/day is the main reason behind the growth in global oil production
-812
-710
-536
-472
Russia
Saudi Arabia
2,037
5,570
9,256
1,253
Iraq
1,687
Canada
World total
US
1,276
United Kingdom
Libya
Norway
-1,394
Venezuela
Mexico
Biggest changes in oil production between 2008 and 2016
Change in production ['000 bbl/day]
Market share
2008 2016
Rank
2008 2016
1,1%
3
12
1
2
7
11
18
8
6
17
1
5
1
3
6
14
19
11
12
30
Source: BP Statistical Review of World Energy 2017; Roland Berger
1 Analysis of 2017
8.2%
2.9%
12.9%
12.0%
3.9%
3.0%
1.9%
3.8%
3.9%
2.2%
13.4%
4.8%
13.4%
12.2%
4.8%
2.2%
2.7%
2.6%
0.5%
12
Saudi Arabia, the historical top forecaster, was much too bullish in 2017 – Institutions remain the better forecasters
Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger
2017 forecasting error
Top 10 oil exporting countries
and institutions
19%
1%
3%
41%
28%
5%
1%
48%
18%
1%
16%
14%
32% Algeria
Iran
Iraq
Kuwait
Mexico
Nigeria
Norway
Russia
Saudi Arabia
Venezuela
NYMEX
EIA
OECD
2 Accuracy of oil price forecasts
Historically top-3 best forecasters
had a forecast error of 20% in 2017
Average forecasting error: 8%
Absolute year-ahead oil price forecasting error, 2017 [%]
Actual
2017 forecast1)
67.4
43.0
41.7
43.7
48.3
75.2
51.3
36.8
71.6
51.6
50.9
41.4
49.3
50.2
1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015)
13
1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015)
In 2009, institutions started forecasting better than oil exporting countries – Since 2012, they are unbeaten
Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger
17
107
19
35
2124
69
151616
4
2019
12
2008 2007 2006 2005 2004 2003 2002
Yearly oil price forecasting error, institutions and top-3 countries1), 2002-2017 [%]
85
53
58
611
2
8
20
14
65
28
1919
10
20
48
2015
12
2016
27
2017 2009 2010 2011 2012 2013 2014
Institutions Top-3 most accurate countries
"Institutions predict best" "Countries predict best"
2 Accuracy of oil price forecasts
14
The emergence of institutions as better forecasters coincides with the rise of the US as a major (shale) oil producer and exporter
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
15,000
10,000
5,000
0
Source: OPEC; EIA; Roland Berger
CRUDE OIL PRODUCTION
EXPORTS (all petroleum products)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10,000
5,000
0
15,000
"Institutions predict best" "Countries predict best"
Crude oil production per country and US exports, 2007-2017 ['000 bbl/day]
USA Saudi Arabia Other producers Russia
2 Accuracy of oil price forecasts
15
Saudi Arabia's bullish forecast was driven by some misplaced estimates but mainly by management of the public budget
1) Excluding crisis years 2001, 2008 and 2015; 2) Based on Iran's exports of crude oil and petroleum products in 2016
Source: OPEC; CIA; Press reports; Roland Berger
2 Accuracy of oil price forecasts
> Between 1999 and 20161), Saudi Arabia's oil price forecast averaged 37% below the actual
> The National Transformation Plan (NTP 2020) launched in 2016 has put extra pressure on Saudi Arabia's public budget
> A less conservative estimate helps keep the public deficit as small as possible (8.9% of GDP in 2017), since the petroleum sector accounts for 87% of the public budget
1 Management of the public budget
> Saudi Arabia had not expected shale oil prices to drop below USD ~75/bbl, so it underestimated US supplies at current oil prices
2 Interpretation of US shale oil break-even price
> Saudi Arabia expected the oil ban on Iran to be reinstated, removing ~3 m bbl/day2), or 3.8% of the total exported volume, from the market
3 Outlook on Iran's exports
Main drivers behind Saudi Arabia's bullish forecast
17
The oil price is now at about USD 58 – For 2018, both institutions and the top-3 most accurate countries predict a price of around USD 54
Source: Ministry of Finance of selected countries; National banks; Press reports; Roland Berger
58
WTI oil price as of Dec 2017
54
59
55
47
Saudi Arabia
Average
Nigeria
Iraq
54
56
51
55
OECD
EIA
NYMEX
Average
Corrected prediction of top-3 countries
Prediction of institutions
Both countries and institutions expect the oil price to decrease
2018 WTI price forecasts1) [USD/bbl]
Future oil prices 3
1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015)
18
20
30
40
50
60
70
80
90
100
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Glo
bal
oil
con
sum
pti
on
[m
bb
l/day
]
Global GDP [constant 2010 USD]
2016 2007
2000
1995
1990
1983
1979
1975
1970
1965
Historically, global oil consumption has followed global GDP growth
Global oil consumption [m bbl/day] vs. global GDP, 1965-20161)
Source: The World Bank Development Indicators; BP Statistical Review of World Energy 2017; Roland Berger
1) 2016 forecast based on OECD GDP growth, applied to World Bank data
2008 peak oil prices
1979 oil crisis 1973 oil crisis
Future oil prices 3
19
2.5
2.0
1.5
1.0
2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964
Oil
[m b
bl/d
ay]
per
tri
llio
n U
SD
GD
P
However, since a peak in 1973, the correlation between oil consumption and GDP growth has weakened
Global oil consumption [m bbl/day] per trillion USD GDP, 1965-20161)
1973 peak: 2.5 m bbl/day per USD tn GDP
1979 oil crisis
1973: USD ~22 tn GDP with 56 m bbl/day oil consumption
2016: USD ~78 tn GDP with 91 m bbl/day oil consumption
2016: 1.2 m bbl/day per USD tn GDP
Source: World Bank Development Indicators; BP Statistical Review of World Energy 2017; Roland Berger
1) 2016 forecast based on OECD GDP growth, applied to World Bank data
Future oil prices 3
20
Expected
peak oil 0
10
20
30
40
50
60
70
80
90
100
110
120
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Future oil prices 3
Depending on the scenario, BP predicts global oil demand to peak between 2025 and 2035
Global oil demand [m bbl/day] per year
Source: BP Energy Outlook 2018; Roland Berger
Actuals Evolving transition Faster transition Even faster transition ICE1) transition
1) Internal combustion engine
21
With its proven reserves, the US can ride it out until peak oil, maintaining pressure on the oil price as a swing supplier
13
102
26
98
172
153
158
110
266
48
Brazil
Kuwait
China
UAE
Canada
Iraq
Iran
Russia
Saudi Arabia
US
Proven reserves ['000 million bbl] Production 2016 ['000 bbl/day] Time left [years]
Source: BP Statistical Review of World Energy 2017; Roland Berger
Country
2,605
3,151
3,999
4,073
4,460
4,465
4,600
11,227
12,349
12,354
Proven reserves and production rate of 10 biggest oil producing countries
1) Based on years 2006-2016
Future oil prices 3
59.1
26.7
94.3
93.9
105.4
65.8
17.6
88.2
13.3
10.6
22
CEOs of major oil companies generally agree that the oil price will see a slight increase in the coming years
Source: Press; Roland Berger
Selection of quotes on the oil price
Lower forever; yeah, that's the mindset.
Yeah, to be perfectly honest, I do think we
will have quite a bit of movement in the oil
price going forward, and there is a better
than 50-50 chance that we will see oil
prices trend up
08-01-2017, Ben van Beurden
CEO, Shell
I don't expect there to be a real spike in the
markets, barring some geopolitical
event…I've always said we're in the USD
50-60 range until the end of the decade
11-13-2017, Bob Dudley
CEO, BP
I think we will most likely be below USD
70 a barrel
02-07-2018, Eldar Sætre
CEO, Statoil
It's very hard to predict what will be the oil
price…We see the prices for the medium
term between USD 65 and USD 55 per
barrel
11-15-2017, Pedro Parente
CEO, Petrobras
A continuation of these market trends,
combined with further steady draws in
global oil inventories, is now creating the
required foundation for further upward
movement in oil prices and subsequent
growth in global E&P investment
10-20-2017, Paal Kibsgaard
CEO, Schlumberger
While the outlook for commodity prices
has improved, our operating plan remains
unchanged and we have already taken
clear actions to demonstrate our
commitment to maintain discipline and
follow our priorities
11-08-2017, Ryan Lance
CEO, ConocoPhillips
Future oil prices 3