Short and Medium-Term Oil Market Outlook
EIA 2018 Workshop on Financial and Physical Energy Market Linkages
September 27, 2018
Commodities Research
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 37.
Michael Cohen
+1 212 526-3606
BCI, US
Restricted - External
12 September 2018
Views on a page
1. We see material upside risk from current price levels during 4Q due to supply
disruptions and Iran sanctions.
2. But unless there are even further disruptions than those baked into our balances, the
balance should weaken through end-2019. Therefore, we see prices averaging
between $70-80/b in Q4 and next year.
3. Price risks to the upside: US production cutbacks, stronger-than-forecast demand,
supply disruptions (Iran, Venezuela, Iraq, Nigeria, Libya).
4. Price risks to the downside: US and other non-OPEC production outperformance,
demand growth disappoints, trade tension and protectionism concerns.
5. In the medium term, we forecast Brent prices at $75 in 2020 and $80 in 2025, around
$15 higher than the curve.
Source: Bloomberg, Barclays Research
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12 September 2018
Synchronous global backdrop drove robust demand growth
Time frames of synchronous global economic growth are consistent with acceleration in demand
growth and rising oil prices (Jan 1998-Dec 2018)
Source: Haver Analytics, IEA, EIA (Imported nominal average acq. cost), Barclays Research
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-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0
20
40
60
80
100
120
140
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Global Oil Demand Growth and Oil Prices
Nom. oil price ($/b), LHS Oil Demand Growth, 12 mth MA (%, RHS)
synchronous global growth
3
Source for all charts: CNBS, Haver, Bloomberg, Markit, Barclays Economics Research
Emergent Chinese growth fears Trade indicators turn negative
12 September 2018
But now, China growth fears and trade tensions add headwinds
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4
-30
-20
-10
0
10
20
30
40
50
45
47
49
51
53
55
57
Jan-10 Jun-11 Nov-12 Apr-14 Sep-15 Feb-17 Jul-18
Global PMI Industrial Goods: New Export Orders
US Capital Goods orders (RHS)
% 6m on 6m change, saar
4
5
6
7
8
9
10
11
Q2 10 Q2 11 Q2 12 Q2 13 Q2 14 Q2 15 Q2 16 Q2 17 Q2 18
% y/y
Official GDP
-10
-5
0
5
10
15
20
25
30
Aug-10 Aug-12 Aug-14 Aug-16 Aug-18
% y/y
China Infrastructure Investment
44
46
48
50
52
54
56
Aug-10 Aug-12 Aug-14 Aug-16 Aug-18
% y/y
China New Export Orders PMI
Note: The chart on RHS shows average retail gasoline prices in local currency indexed at 2005 level. Source for all charts: IEA, EIA, Bloomberg, Barclays Research
Sharply higher oil prices weighed significantly
on demand growth in Q1 last year and Q2 this
year
Subsidies removal, additional taxation and a
strengthening USD are all having an outsized
effect on local-currency retail fuel prices
12 September 2018
But higher oil prices could turn into a headwind for demand growth
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-60%
-40%
-20%
0%
20%
40%
60%
80%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Q1 14 Q1 15 Q1 16 Q1 17 Q1 18
Total demand y/y change (mb/d)
Brent price y/y change (%, rhs)
50
70
90
110
130
150
170
190
210
230
2005 2007 2009 2011 2013 2015 2017
Brent India China
Thailand US EU
5
12 September 2018
And supply growth outside OPEC remains strong
Source for all charts: EIA, IEA Bloomberg, Barclays Research
Despite Petrobras’s problems and retail price
intervention, production still set to grow strongly
Non-OPEC supply growth exceeding demand
US tight oil production is the main source of
growth
0.43 0.42
0.13
-0.34
-0.09
0.15 0.10
0.19 0.23
0.10
-0.14
0.04
0.09
0.170.27
0.25
0.15
0.43
0.73
0.51
-1.0
-0.5
0.0
0.5
1.0
1.5
2013 2014 2015 2016 2017 2018 2019
Eagle Ford Williston Basin -ND
Permian Alaska
US Gulf of Mexico Other Crude
NGLs
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0.50.1
0.1
1.2
0.1
0.6
1.6
2.4
1.5
-0.7
0.8
2.0
1.6
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2007 2009 2011 2013 2015 2017 2019
mb/dNon-OPEC Supply Growth
North America (NAM) Non-OPEC ex-NAM
*Not including OPEC non-crude liquids
1.31
3.30
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Brazilian oil ouptut (mb/d)
Campos Santos Other
6
12 September 2018
Therefore, we still see the market balance in slight surplus next year.
The severe supply deficit from 2017 to 3Q18 has helped support prices
Source: IEA, EIA, Barclays Research
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72
75
67
73
20
30
40
50
60
70
80
90
100
110
120
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19
Oil market balance and prices
Stock change + misc (LHS) Brent Price (RHS)
7
The Permian remains constrained through mid next year but still holds large potential
Source: for all: Wood Mackenzie, Company Filings, Bloomberg, Barclays Research
Permian takeaway capacity constraints in the
region will prove transitory
However, capital discipline continues to keep
spending in check
12 September 2018
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0
2
4
6
8
10
Q1 11 Q1 13 Q1 15 Q1 17 Q1 19 Q1 21 Q1 23 Q1 25
Basin refining capacity
Pipelines in operation
Pipelines FID-ed
Proposed pipelines
Production
80%
100%
120%
140%
160%
180%
200%
2012 2013 2014 2015 2016 2017 1H 18
Large cap
Small&Mid cap
Group
0
5
10
15
20
25
30
35
Wolfcamp Bone
Spring
Eagle Ford SCOOP/
STACK
Bakken/Three Forks Niobrara
<$40/bbl
$40-50/bbl
$50-60/bbl
>$60/bbl
Remaining liquid reserves (bn barrels) by play and breakeven
Large opportunity set vs other plays in terms of remaining liquids reserves
8
12 September 2018
Inventory cushion erodes and JCPOA exit raises tension
Key oil transit chokepoints and infrastructure are at risk of disruption in the months ahead
Source: S&P Global Platts, EIA, Barclays Research
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9
Iran’s exports fall 800 kb/d and we expect a further decline
Source: IEA, Petro-logistics (exports), Barclays Research
Three angles to Iran-related price effect: trade, medium-term investment, geopolitics; medium-
term implications most market moving, in our view
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500
1,000
1,500
2,000
2,500
3,000
3,500
Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 Jul-18
Iran exports and key sanctions dates
IEA Petrologistics*
Jan 2012: First full month of
NDAA implementation
Jan. 2014: P5+1 Joint
Plan of Action goes in
to effect
Jan. 2016: Iran reaches
implementation day
July : EU P&I Club grace
period expires
March: EU For. Ministers agree
to enforce ban on import of
Iranian crude and products
Oct: EU prohibits storing on
EU tanker and blacklists oil-
related entities.
May 2018: US withdraws
from JCPOA, reimposes
sanctions
12 September 2018 10
12 September 2018
Despite disruption risks, we think prices are likely to remain rangebound between $70-80/b in 2019 and 2020
Source: EIA, CDU-TEK, Bloomberg, Barclays Research
Conventional spare capacity estimates and
other offsets likely understated
Spare capacity levels low but have been worse
Base metals continue to diverge from energy
commodities
Short order supply mb/d Other supply mb/d
Iraq 0.17 UAE 0.3
Kuwait 0.15 Russia 0.3
Saudi Arabia 0.53 Neutral Zone 0.5
UAE 0.29 Saudi Arabia 0.5
Total 1.14 Total 1.6
2.7
Govt InventoriesDrawdown
rate* (mb/d)
Capacity level
(mill. Bbl)
OECD ex-US 2.52 907
US 1.83 660
non-OECD 0.78 280
Total 5.13 1847
*Drawdown of half the inventory level is assumed over 180 days.
Design drawdown of US SPR is 4.4 mb/d for 90 days
Grand total wellhead supply spare capacity
-15%
-10%
-5%
0%
5%
10%
15%
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
Agriculture Livestock
Precious Metals Base Metals
Energy
-200
-150
-100
-50
0
50
100
150
200
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18
Rosneft Annual Output Growth by Field Type (kb/d)
Old Greenfields Brownfields Other Total
Russian output is rebounding
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0%
2%
4%
6%
8%
10%0
20
40
60
80
100
120
140
160
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Sp.Cpy/Demand
(inverted)$/b Spare Capacity and Oil Prices
Price
Sp Capacity/Demand
Sp.Capacity(incl Neutral Zone)/Demand
11
Source: IEA, Barclays Research
12 September 2018
IMO sulphur cap revision to boost diesel demand by almost 2mb/d y/y in 2020
We expect diesel to replace 1.9 mb/d of HSFO
used in marine bunkers in 2020
This will boost diesel demand in an already
tight distillates market
Source: Shell, Barclays Research
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1.7
3.6
0
1
2
3
4
5
6
2019 2020
HSFO Diesel LNG
45.6
37.9
30
35
40
45
50
55
Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
IMO sulphur cap announcement
12
Medium-term oil price outlook:
Full report: Oil Special Report: Resisting Temptation, 4 Sep 2018
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12 September 2018 13
OPEC unrest reduces the opportunity set, raises pressure on selected members
Source: IMF, SAMA, Barclays Research
No shortage of oil, but a shortage of access Middle East still the largest share of
oil exports
Most MENA countries need prices to stay at or above current levels
Source: Rystad Energy, Barclays Research
Source: BP Statistical Review
12 September 2018
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35%
0%
10%
20%
30%
40%
50%
60%
1980 1985 1990 1995 2000 2005 2010 2015
Share of global exports by region
North America S. & Cent. AmericaEurope Other
Middle East
Russia & CIS
0
100
200
300
400
500
600
700
800
Producing Under
development
Discovery Undiscovered
Bill bblRemaining Resources by country & status
Sanctioned At risk OPEC* US & Canada Brazil Other
21%12%
22%
*At risk OPEC countries include Iraq, Libya,
Algeria, Nigeria, UAE, and Saudi Arabia
41%
$84 $111
$72$54 $48
$114
$72
$44
$78$65
0
50
100
150
200
250
300
Algeria Bahrain Iran Iraq Kuwait Libya Oman Qatar Saudi Arabia UAE
Fiscal Breakeven Oil Prices (IMF)
2015 2016 2017 2018 2019
14
• The most substantial change from last year is associated with the 1.5 mb/d reduction in supply from key
OPEC countries, and the higher required WTI price needed to offset it over a multi-year period.
• Though we expect that a price range above $80 will become the new norm next decade, our market balances
do not justify those price levels in the next one to two years.
• There are many other possible reasons to be bullish during that time frame, but the “supply gap” is not one of
them.
• Note: WTI discount range from $5-8/b.
Key takeaways from our recently released report
12 September 2018
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Prices range from below $70/b to above $80 in 2020, between $70-85 by 2025
$76
$72$71
$75
$77
$80
$81$78 $80
$85
$64
$69
60
65
70
75
80
85
90
2018 2019 2020 2021 2022 2023 2024 2025
Unconstrained Permian scenarioBase Case
OPEC investment deferral scenarioBrent Curve
Low demand scenario
Source: Barclays Research
15
Source: Rystad Energy UCube, Barclays Research
12 September 2018
Supply gap thesis is valid but is deferred
2018 oil project FIDs likely to be on par with
2013 when oil was $100/b
And non-OPEC crude and condensate
projects approved over 2014-2018 should add
6 mb/d by 2024
Source: Woodmackenzie, Barclays Research
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0
1
2
3
4
5
6
7
2014 2016 2018 2020 2022 2024
Production volumes from projects
approved 2014-18 (mb/d)
2014 2015 2016 2017 2018
18.0
9.8
9.0
0
2
4
6
8
10
12
14
16
18
20
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Liquids reserves by year of sanctioned
projects (Bill. bbl)
Sanctioned Projects
Expected to receive FID
16
Note: WoodMackenzie assumes 15% cost of capital, WTI equivalent prices, half cycle breakeven. Source: WoodMackenzie, Barclays Research
Reserves estimate up almost 10% y/y; over 90% of the cost base is below $60/b at a 15% IRR
US tight oil resource base assessments keep growing
12 September 2018
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0
20
40
60
80
100
120
140
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000
Q2 2018
Q3 2017
Q3 2016
Q3 2015
Cumulative liquids reserves (mmboe)
WTI breakeven ($/b)
17
Note: Number of horizontal wells brought online by operator category. Source: DrillingInfo, Barclays Research
12 September 2018
US productivity improvements: Consolidation, optimization
Average well productivity has increased
significantly in the region…
…as the share of Permian-focused large
players has increased
Note cumulative oil output from average horizontal well in the region. Source: DrillingInfo, Barclays Research
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0
20
40
60
80
100
120
140
160
180
2013 2014 2015 2016 2017E 2018E
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2011 2012 2013 2014 2015 2016 2017 2018E
Permian-focussed players
Other major upstream players
Implied private players
18
Source: Wood Mackenzie, Barclays Research
12 September 2018
But these gains are assumed to diminish over time.
Longer laterals and increased proppant
intensity have also played a part…
…but we expect productivity to peak around
2020-21 as Tier-1 acreage dries out
Source: DrillingInfo, Barclays Research
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0
10
20
30
40
50
60
70
80
0 10000 20000 30000 40000 50000 60000 70000
WTI breakeven price for type well ($/b, 15% discount rate)
Cumulative remaining locations
500
1000
1500
2000
2500
5,000
5,500
6,000
6,500
7,000
7,500
2013 2014 2015 2016 2017 2018 YTD
Avg. horizontal length (ft, lhs)
Avg. proppant intensity (lbs/ft)
19
We still expect Permian oil output to reach 8 mb/d by 2025
Note: Cumulative tight oil output growth by region (mb/d) over 2017. Source: Rystad UCube, DrillingInfo, Barclays Research
Permian region drives majority of US tight oil output growth over the medium term
• We expect the share of total horizontal wells brought online in the region by smaller private
players to decline from 31% last year to 20% by 2025 owing primarily to continued acreage
consolidation in the region.
• We expect the total plowback ratio in the region to decline from 156% last year to slightly over
90% in 2025.
• We also expect the 12-m cumulative oil output from an average horizontal well in the region to
increase to 170kb in 2020-21 and slowly decline to around 130kb by 2025.
12 September 2018
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2.2
5.61.5
2.1
0
1
2
3
4
5
6
7
8
9
2018 2019 2020 2021 2022 2023 2024 2025
Permian region All other tight oil regions
20
Brazil and Russia: major non-OPEC supply risks in the outlook
Source for all charts: Skolkovo Institute, IEA, CDU-TEK, Barclays Research
Russian output could be 700 kb/d lower by
some estimates
Supply growth in context – US provides the
lion’s share
12 September 2018
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11.4
10.7
10.5
11.0
11.5
12.0
12.5
2017 2018 2019 2020 2021 2022 2023 2024 2025
Th
ou
san
ds
Russian Output (mb/d)
Barclays Skolkovo base Skolkovo sanctions
Outside US tight oil, Brazil and Iraq are the major contributors to medium term supply growth
though other countries play a supporting role, offsetting other major declines
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Saudi Arabia
Kuwait
UAE
Neutral Zone
Venezuela
Libya
Iran
Iraq
Russia
Nigeria
Other OPEC
mb/d
OPEC Liquids Growth/Decline
2018-2022 2022-2025
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Brazil
Australia
Middle East
Africa
Argentina
Mexico
Europe
Canadian Oil Sands
Asia
mb/d
Non-OPEC Liquids Growth/Decline
2018-2022 2022-2025
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2017 2018 2019 2020 2021 2022 2023 2024 2025
Total US tight liquids (kb/d)
OPEC liquids (kb/d)
Other non-OPEC liquids (kb/d)
21
• Our estimates are based on higher world GDP growth, coupled with lower unemployment rates
in developed countries and rising per capita income levels in the developing world.
• Electric vehicles gain popularity, primarily due to policy push. We expect 55 mn EVs on the
road by 2025, an increase of 10% from our prior estimate.
• Diesel demand is likely to soar at the expense of fuel oil demand, as the International Maritime
Organization (IMO) implements a significantly lower sulfur cap for marine bunker fuel.
In our base case, we expect global liquids demand to grow to about 107.6 mb/d by 2025
Source: IEA, WIND , Bloomberg, Barclays Research
12 September 2018
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World oil demand growth by product
0%
1%
2%
3%
4%
5%
6%
PPP-based GDP Gasoline Diesel LPG & Naphtha Jet/kero All other Total oil demand
2007-17 CAGR (Actual) 2017-25 CAGR (Forecast)
22
• EV (including battery-electric vehicles (BEV) and plug-in hybrid vehicles (PHEV)) sales grew to
more than 1.1mn units last year, more than double the volume sold in 2015 and over 50%
higher than 2016.
• We estimate that most of the growth came from China, which accounted for almost two-thirds
of worldwide EV sales.
• The growth in China’s EV sales has been robust despite a significant reduction in government
subsidies over the past few years.
Growing popularity of EVs also weighing on gasoline demand growth
Source: IEA, ACEA, InsideEVs, Barclays Research
12 September 2018
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China leads the charge on electric vehicle sales
0
100
200
300
400
500
600
1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018
'000 units US China EU
23
APPENDIX
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12 September 2018 24
Source for all charts: IEA, EIA, Barclays Research
OPEC in need of new indicator, as the
inventory level is now below the 5-year range
12 September 2018
Inventory excess gone, market turns focus to other metrics
Using days forward inventory + spare capacity
cover would be more useful
0
10
20
30
40
50
60
70
80
90
10026
28
30
32
34
36
38
40
05 06 07 08 09 10 11 12 13 14 15 16 17 18
$/b
Days cover
(inverted)
OECD Stocks (Days Cover) vs Price
OECD Stocks (Days cover)
Brent Price
Fcst.
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-200
-100
0
100
200
300
400
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
Jan-13 Mar-14 May-15 Jul-16 Sep-17 Nov-18
mbbill. barrels
OECD industry petroleum stock levels
Stocks vs 5-year Stock Level (LHS)
Stock Level Fcst (LHS) Prior 5-year avg (LHS)
25
Source for all charts: Bloomberg, CFTC, Barclays Research
Speculative net length still presents downside risk
Net managed money positioning has declined
significantly, but remains high
Direct hedging by producers in the futures
market has declined
Swap dealer net short positioning suggests
producers are hedging with swaps via banks
12 September 2018
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$20
$30
$40
$50
$60
$70
$80
-300
-200
-100
0
100
200
300
400
500
600
Sep-16 Mar-17 Sep-17 Mar-18
Contracts (000)
Long
Short
Net
WTI (rhs)
-1,000
-800
-600
-400
-200
0
200
400
Oct-16 Apr-17 Oct-17 Apr-18
Contracts (000)
Long
Short
Net
-800
-600
-400
-200
0
200
400
600
Oct-16 Apr-17 Oct-17 Apr-18
Contracts (000)Long
Short
Net
26
12 September 2018
Libyan oil supply still subject to disruption
Despite resolution and return of some supplies, Libya’s output can swing by at least 500 kb/d
Source: IEA, EIA, Barclays Research
AG – Arabian Gulf Oil Co
Ak – Akakus Oil Co
AO – Agip Oil Co
HO – Harouge Oil
MO – Mabruk Oil
SO – Sirte Oil Co
WO – Waha Oil Co
Wi – Wintershall
ZO – Zueitina Oil
A – Amazigh
BDB – Benghazi Defence Brigades
LNA – Libya National Army
M – Misrata
SC – Shura Council
SCM – Shura Council of Mujahideen (Allied to AQ)
T – Tebu Militia
Trp – Tripoli Militias
TUA – Taureg
Za – Zawiyah
Zi – Zintan
Libya Dawn
Operation Dignity
Islamist
Petroleum
Facilities Guard
Libyan
National Guard
LNA
LNA LNA
Zi
Zi
Zi
Za
A
Za Za
M
LNA
LNA
LNA
LNA
LNA
LNA
TUA Ak
ZO
HO
MO
ZO WO
WO
SO
SO
WO
HO
SO ZO
WO
WO AG
Wi
MO
Trp LNG
Ind
Zawara
Mellitah
Riyayna
Zintan
Zawiyah
Tripoli (Tarabulas)
Nalut
Ghadames
Ubari
Murzuq
Sabha
Al Khums
Misrata
Sirte
Sidra
(Es-Sider)
Brak
Ras Lanuf
Marada
Al-Ugaylah
Marsa el Brega
Ajdabiya
Zueitina
Benghazi
Al Bayda Derna
Tobruk
(Hariga)
LNA Wahat Jalu
Sarir Refinery GMMR Power
Station
Sharara
PFG AO El Feel (Elephant)
En Naga
Sabah
Zella
Ghani Jofra
Al Mabruk Bahi
Dahra
Tibisti
Raguba
Nasser
Samah Defa
Waha S
Amal
Intisar
Gialo
Mesla
Sarir
Al Jurf
Wafa Waddan
Libya
Tunisia
Murzuq Basin
Sirte Basin Sarir/Mesla
Oilfield
Oil Pipeline
Oil Refinery
Oil Storage
Tanker Terminal
Active Front Line
Zawiyah
Max refining/export
capacity 200,000 b/d
NOC
Mellitah
Export capacity 30,000 b/d
NOC/ENI
Es-Sider
Export capacity 447,000 b/d
NOC
Ras Lanuf
Max refining/export
capacity 220,000 b/d
NOC/Trasta
Zueitina
Export capacity 200,000 b/d
NOC/Occidental/OMV
Brega
Max refining/export
capacity 51,000 b/d
NOC
Hariga
Export capacity 120,000 b/d
AGOCO-NOC
A
Hamada AG
Military dispositions represent location of forces, not their
relative strength which is variable
Mar-18
Ind
Al Fuqaha Nov-17–Jan-18(2)
LNA
Oct-17
Oct-17 Sep-17
Sep-17(1)
LNA PFG BDB
LNA PFG BDB
Jun-18
Jun-18
Government of National Accord
LNA
HO
Wi
AG
As Sarah
Nafoora
House of Representatives
SCM LNA
US Airstrikes vs. ISIS/AQ ISIS Activity
Folgore Parachute Brigade:
Mediacal Hospital M
Red Wadi
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27
Sanctions accelerating Venezuela’s production decline
Source: for all: IEA, EIA, MEES, OPEC, Bloomberg, Barclays Research
Revenues remain depressed, as production
declines have offset higher prices
We expect crude production to fall below 1.0
mb/d in 2018 and 2019, from 1.4 mb/d now
Small uptick in recent export loadings PDVSA controls the lion’s share of production
(kb/d)
0
5
10
15
20
25
30
35
0
500
1,000
1,500
2,000
2,500
3,000
3,500 Production (lhs, kb/d)
Consumption (lhs, kb/d)
Revenues (rhs, $bn)
Company 2010 2011 2012 2013 2014 2015 2016
Shell 10 20 20 20 20 20 20
Chevron 80 80 90 90 90 90 80
Repsol 20 30 30 30 20 30 30
CNPC 10 20 20 20 20 30 30
PetroChina 20 20 20 30 30 30 30
Total 40 40 40 40 40 40 30
Rosneft 40 40 50 60 60 60 70
Gazprom 100 90 90 80 90 60 50
Others 70 80 80 110 110 130 130
PDVSA 2,220 2,260 2,210 2,150 2,050 2,060 1,880
12 September 2018
0
500
1,000
1,500
2,000
2,500
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18
Venezuela Production and Exports by Destination
China US India
Caribbean Other Total Exports
Total Production
Restricted - External
0
500
1,000
1,500
2,000
2,500
3,000
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18
Venezuela Production and Exports (Jan 2016-Aug 2018), kb/d
Crude exports Upgraded crude exports Production Source: Petro-logistics, Barclays Research
28
Source:: MEES, IEA, Barclays Research
Despite Venezuelan output falling below 1 mb/d and Saudi Arabia increasing to no more than 10.6
mb/d, the market still flips to slight surplus
OPEC production assumptions behind current outlook
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A nnual A nnual A nnual
B arc lay s 2017 Change Q118 Q218 Q318 Q418 2018 Change Q119 Q219 Q319 Q419 2019 Change
Algeria 1.05 -0.06 1.01 1.08 1.10 1.10 1.07 0.03 1.00 1.00 1.00 1.00 1.00 -0.07
Angola 1.64 -0.07 1.55 1.50 1.56 1.67 1.57 -0.07 1.73 1.75 1.70 1.60 1.69 0.12
Ecuador 0.53 -0.02 0.52 0.53 0.55 0.56 0.54 0.01 0.55 0.54 0.52 0.50 0.53 -0.01
Equatorial Guinea 0.13 -0.02 0.13 0.11 0.10 0.10 0.11 -0.01 0.10 0.11 0.11 0.12 0.11 -0.00
Gabon 0.20 -0.03 0.21 0.18 0.24 0.22 0.21 0.01 0.21 0.21 0.22 0.23 0.22 0.01
Iraq 4.47 0.06 4.45 4.55 4.65 4.69 4.59 0.11 4.64 4.61 4.68 4.76 4.67 0.09
Iran 3.80 0.25 3.81 4.03 3.82 3.68 3.84 0.04 3.40 3.30 3.29 3.28 3.32 -0.52
Kuwait 2.71 -0.18 2.70 2.71 2.90 2.90 2.80 0.10 2.91 2.92 2.93 2.95 2.93 0.13
Libya 0.83 0.44 1.01 0.93 0.50 0.65 0.77 -0.06 0.78 0.80 0.80 0.80 0.80 0.03
Nigeria 1.53 0.06 1.66 1.49 1.62 1.68 1.61 0.09 1.53 1.70 1.70 1.70 1.66 0.05
Saudi Arabia 9.96 -0.46 9.95 10.13 10.60 10.40 10.27 0.31 10.40 10.30 10.53 10.38 10.40 0.13
Qatar 0.61 -0.04 0.60 0.62 0.65 0.68 0.64 0.03 0.68 0.68 0.68 0.68 0.68 0.04
UAE 2.93 -0.12 2.84 2.92 3.10 3.10 2.99 0.06 3.10 3.10 3.10 3.15 3.11 0.12
Venezuela 1.97 -0.27 1.54 1.37 1.00 0.90 1.20 -0.76 0.88 0.85 0.90 0.90 0.88 -0.32
Neutral Zone 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.08 0.22 0.08 0.08
OPEC Crude 32.35 -0.46 31.99 32.15 32.38 32.33 32.21 -0.13 31.91 31.88 32.26 32.27 32.08 -0.14
OPEC Non-Crude 6.87 0.09 6.84 6.86 7.00 7.07 6.94 0.07 7.18 7.20 7.19 7.18 7.19 0.24
OPEC Total Liquids 39.22 -0.37 38.90 38.84 39.38 39.40 39.13 -0.08 39.09 39.08 39.45 39.45 39.27 0.13
Russia 11.36 0.02 11.34 11.35 11.35 11.37 11.35 -0.01 11.49 11.56 11.61 11.68 11.59 0.23
Swing Suppliers* 26.95 -0.74 26.84 27.11 27.95 27.77 27.42 0.46 27.90 27.88 28.18 28.16 28.03 0.61
29
Global oil demand growth: A rising tide
Source: IEA, Bloomberg, Barclays Research
World total products demand y/y change by region (mb/d)
• Robust outlook for global economic activity supporting oil demand. We forecast global oil
demand growth to be 1.4 mb/d both his year and the next.
• Elasticity higher, due to structural changes in energy commodity pricing in non-OECD
countries.
• Energy intensity of global GDP growth has also been declining over the years.
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-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018
OECD China Other Asia Latin America and FSU Middle East and Africa Other
30
The implementation of IMO regulation significantly disturbs the balance in global petroleum fuel markets in 2020
Note: Assumes $75/b Brent in 2020. All product prices in $/b for NWE. Sweet-Sour spread in the above example is Bonny light vs Urals. Source: Bloomberg, Barclays Research
Depending on how much HSFO prices drop, light product cracks and sulphur spreads
could blow out materially.
• Residual fuel oil prices likely to drop significantly. Extent depends on how quickly and at what
price levels displaced fuel is absorbed in power generation and industrial heating.
• Assuming that simple hydroskimming refineries in the North-West Europe are just profitable to
meet incremental demand, gasoline and diesel prices in the region could move higher by as
much as 13% and 20%.
• In addition, the sweet-sour crude oil spread could also blow out by $5 to $15 per barrel.
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Scenario HSFO/Brent ratio HSFO Price Diesel Price Gasoline Price Diesel-HSFO spread Sweet-Sour spread
10-year avg. 0.8 60 87 83 27 2.9
10 pp lower HSFO
spread0.7 53 96 88 43 10.6
IMO effect -0.1 -7 9 5 16 7.8
20 pp lower HSFO
spread0.6 45 100 92 55 14.0
IMO effect -0.2 -15 13 8 28 11.2
30 pp lower HSFO
spread0.5 38 104 94 67 17.3
IMO effect -0.3 -23 17 11 40 14.4
31
Source: Barclays Research
12 September 2018
EV adoption rising exponentially
We expect global EV stock to reach 55mn
units by 2025
This offsets more than 1 mb/d of oil demand
growth
Source: IEA, Barclays Research
Restricted - External
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0
10
20
30
40
50
60
2015 2017 2019 2021 2023 2025
Global EV stock (millions)
EVs share of global car fleet (rhs)
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
0
200
400
600
800
1,000
1,200
2017 2019 2021 2023 2025
EV oil demand offset (kb/d)
EV Impact as % of oil demand (rhs)
32
Note: Per-capita ethylene and propylene consumption by country. Source: Nexant, Barclays Research
12 September 2018
Growing petrochemical demand to drive growth in LPG and naphtha consumption
LPG and naphtha are primarily used as
petrochemical feedstock
Growing plastics consumption in emerging
markets to drive growth in LPG and naphtha
Source: IEA, Barclays Research
Restricted - External
Petchem
53%
Residential
24%
Process
Heating
6%
Transport
5%
Other
12%
0
20
40
60
80
100
120
140
2013 2014 2015 2016 2017
China EU US
33
• Low demand scenario of 4.1% CAGR (vs
5.6% in the base case).
• 23% share of EVs/total car sales, 10pp
higher than our base case assumption of
13%.
• 2025 global oil demand would be 3.2
mb/d below the base case.
• Economic growth risks arise from
escalating trade war concerns between
the US and China and a potentially
significant knock-on effect of sharply
higher shipping, airline transit, and
agricultural costs, due to IMO regulations
that are set to kick in in 2020.
If global economic growth disappoints, demand growth could be significantly below our base case
Source: IEA, WIND , Bloomberg, Barclays Research
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0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
95
97
99
101
103
105
107
109
2017 2018 2019 2020 2021 2022 2023 2024 2025
Base case y/y change (mb/d, rhs)
Low demand growth scenario y/y change (mb/d, rhs)
Base case demand (mb/d)
Low demand growth scenario demand (mb/d)
3.2 mb/d
34
35
Analyst Certifications and Important Disclosures Analyst Certification(s)
I, Michael Cohen, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
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