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WHY ARE OIL PRICES SO HIGH?

WHY ARE OIL PRICES SO HIGH?. David Long Oxford Petroleum Research Associates Flame 2005 www.oxfordpetroleum.com. Not speculation. Source: CFTC, Nymex. ...but structural change. Source: Nymex. Key questions. Are we running out of oil? Will strong oil demand persist?

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WHY ARE OIL PRICES SO HIGH?

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  1. WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame 2005 www.oxfordpetroleum.com

  2. Not speculation... Source: CFTC, Nymex

  3. ...but structural change Source: Nymex

  4. Key questions • Are we running out of oil? • Will strong oil demand persist? • Will Opec expand capacity? • What is the future for oil prices?

  5. Are we running out of oil? • No – plenty of oil liquids left to develop • But – remaining reserves concentrated in Middle East and FSU • Non-Opec production excluding FSU and unconventional oil is already on plateau • Non-Opec including FSU/unconventional oil expected to peak around 2010 • Middle East Opec will have to supply most of the new oil to meet future demand growth

  6. Problem is not how much oil ... billion barrels Cumulative production 701 Known oil reserves 890 Undiscovered 210 - 728 Total (without growth) 1800 - 2319 Reserves growth 0 - 684 Total (with reserves growth) 1800 - 3003 Heavy/extra-heavy oil 460 - 600 Bitumen/tar sands 300 - 400 Total (with unconventional) 2560 – 4003 Natural gas liquids ~200 Oil liquids yet-to-be produced 2000 - 3500 Oil shales ~14,000 Source: USGS, Campbell & Laherrere

  7. ... but where it is Source: USGS

  8. Growing supply gap ... Source: PFC Energy

  9. ... to be filled by Opec? Source: IEA, World Energy Outlook, 2004

  10. Will strong demand persist? • Recent acceleration in global oil demand • Huge potential of developing economies • But are high growth rates sustainable? • limits on carbon emissions • supply security issues • who will provide the extra capacity?

  11. Accelerating demand Source: IEA, Argus Fundamentals

  12. Following the same path? Source: IEA, World Energy Outlook, 2004

  13. Sustainable growth? Source: BPSR, IMF, Opra

  14. Is supply secure? Source: IEA, World Energy Outlook, 2004

  15. Will Opec expand capacity? • Higher prices or bigger market share? • Low cost reserves favour bigger market share • But market power favours higher oil prices

  16. Price or market share? Source: DeGolyer & MacNaughton, Opec, BPSR, Argus Fundamentals

  17. Low cost reserves = bigger share... Non-Opec Opec Known oil reserves

  18. ...but market power = higher prices Source: IEA, World Energy Outlook, 2004, Opra

  19. What is the future for oil prices? • Opec policies now favour high oil prices • No alternative to Middle East oil reserves • Oil demand will be constrained by: • high oil prices • carbon emission limits • supply security concerns • Iraq remains a wild card

  20. WHY ARE OIL PRICES SO HIGH? David Long Oxford Petroleum Research Associates Flame 2005 www.oxfordpetroleum.com

  21. Downstream capacity shortage? • Rising refinery utilisation rates • Widening quality differentials • Surging tanker rates

  22. Rising utilisation rates Source: BPSR, Argus Fundamentals

  23. Widening quality differentials Source: Argus Fundamentals

  24. Surging tanker rates Source: Argus Fundamentals

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