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Political Instability & Crude Oil Pricing: Short Term Outlook

Political Instability & Crude Oil Pricing: Short Term Outlook. Presented at ISM Midwinter Conference February 2006. Petral Chronicle February 7 th , 2004. Saudi Royal Family Abdicates Country Spirals into Chaos Crude Oil Prices Spike to $45 per barrel. Petral Chronicle August 7 th , 2004.

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Political Instability & Crude Oil Pricing: Short Term Outlook

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  1. Political Instability & Crude Oil Pricing:Short Term Outlook Presented atISM Midwinter ConferenceFebruary 2006

  2. Petral ChronicleFebruary 7th, 2004 Saudi Royal Family Abdicates Country Spirals into Chaos Crude Oil Prices Spike to $45 per barrel Petral Consulting Company knowledge to bridge the gap

  3. Petral ChronicleAugust 7th, 2004 Conservative & Pro-Western Factions of Saudi Royal Family at WarCountry Spirals into Chaos Crude Oil Prices Spike to $60 per barrel Petral Consulting Company knowledge to bridge the gap

  4. Petral ChronicleFebruary 7th, 2005 Conservative & Pro-Western Factions of Saudi Royal Family at WarCountry Spirals into Chaos Crude Oil Prices Spike to $100 per barrel Petral Consulting Company knowledge to bridge the gap

  5. Petral ChronicleFebruary 7th, 2005 Toto … we’re not in Kansas anymore Crude Oil Prices Spike to $100 per barrel Petral Consulting Company knowledge to bridge the gap

  6. Flashpoints & Sources of Instability • Venezuela • Chavez has consolidated his power • Chavez uses oil revenues to fund government spending // maintenance of oil fields suffering • Oil fields in western Venezuela are high maintenance with natural decline rates of 20-25% per year – EIA statistics say production has been constant at 2.5 MM Bpd for 2 years Petral Consulting Company knowledge to bridge the gap

  7. Other Flashpoints& Sources of Instability • Indonesia • Al Qaeda Has Mounted 2 Major Attacks • Local Islamic Forces Engaged in Civil War with Government Forces • Tourism Suffering // Crude Production Unaffected .. So Far • Nigeria • Conflict in Niger Delta Will Continue to Disrupt Production Petral Consulting Company knowledge to bridge the gap

  8. Crude Prices & Saudi Crude Oil Production Petral Consulting Company knowledge to bridge the gap

  9. Crude Prices & Middle East Crude Oil Production Petral Consulting Company knowledge to bridge the gap

  10. Crude Prices & Russia Crude Oil Production Petral Consulting Company knowledge to bridge the gap

  11. Crude Prices & North Sea Crude Oil Production Petral Consulting Company knowledge to bridge the gap

  12. Crude InventoryGulf Coast & Mid-Continent Petral Consulting Company knowledge to bridge the gap

  13. U.S. Crude Imports Petral Consulting Company knowledge to bridge the gap

  14. U.S. Refinery Crude Runs Petral Consulting Company knowledge to bridge the gap

  15. WTI minus Brent Petral Consulting Company knowledge to bridge the gap

  16. WTI minus Dubai/Oman Petral Consulting Company knowledge to bridge the gap

  17. Gulf Coast Refinery Crack Spread Margin Petral Consulting Company knowledge to bridge the gap

  18. U.S. Gasoline Production Petral Consulting Company knowledge to bridge the gap

  19. U.S. Gasoline Imports Petral Consulting Company knowledge to bridge the gap

  20. U.S. Gasoline Inventory Petral Consulting Company knowledge to bridge the gap

  21. Gulf Coast Refinery Margin3-2-1 Crack Spread Petral Consulting Company knowledge to bridge the gap

  22. Professional NYMEX Crude TradersLong Positions- Short Positions Petral Consulting Company knowledge to bridge the gap

  23. Professional NYMEX Crude Traders# of Long Positions Petral Consulting Company knowledge to bridge the gap

  24. Professional NYMEX Crude Traders# of Short Positions Petral Consulting Company knowledge to bridge the gap

  25. WTI at Cushing: Cash Market Petral Consulting Company knowledge to bridge the gap

  26. Conclusions & Observations • From the perspective of historical correlations, fundamentals are bearish for WTI prices. • From a NYMEX perspective, too many traders expanded short positions in the 4th quarter. a price rebound in January has been a 100% lock since 1999 and short-covering reinforced the rebound. • Fundamentals will remain bearish but traders have to be concerned about the upcoming hurricane season – this factor is likely to kick in early this year (April/May). Petral Consulting Company knowledge to bridge the gap

  27. Conclusions & Observations • Once a dependable source of incremental crude supply, Saudi Arabia has not increased crude oil production since the 3rd quarter of 2004 (18 months) • Aramco says requests for crude are being met 100%. • Russia resumed state control of oil and gas production and is becoming viewed as an unreliable supplier Petral Consulting Company knowledge to bridge the gap

  28. Conclusions & Observations • Uncertainties regarding crude production in Iraq, Iran Nigeria and Venezuela likely to keep traders and buyers ‘on edge’ • Crude production In Venezuela likely to be stagnant or gradually declining during 2006/2007 due to the impact of Chavez “reforms” of PDVSA // several major Gulf Coast refineries are vulnerable • The bullish trend is likely to remain intact through August or September Petral Consulting Company knowledge to bridge the gap

  29. Long Term Outlook • Due to bullish short term considerations and growing uncertainties about global supply development, Petral forecasts for crude oil prices of $50-60 per barrel now extend into 2008. • The uncertainties about demand growth in China, lagging development of new production in key areas like Russia, delays in development of production in Iraq point to stronger prices for much longer than we had forecast just a year ago. Petral Consulting Company knowledge to bridge the gap

  30. West Texas Intermediate Petral Consulting Company knowledge to bridge the gap

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