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‘New/old views on crude oil and petroleum products storage and trading in the Med market’
for Janaf Conference
22 November 2016
Eugene Lindell, JBC Energy
Special Presentation
Disclaimer
All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements (including those depicted in graphical form) are statements of future expectations that are based on JBC Energy’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things statements expressing JBC Energy’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, “forecast”, “predict”, “think”, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. All forward-looking statements contained in this speech/presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers/audience should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither JBC Energy nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this speech/presentation. Any persons acting on information contained in this presentation does so solely at their own risk. JBC Energy is not responsible for the accuracy of data collected from external sources and will not be held liable for any errors or omissions in facts or analysis contained in this presentation. JBC’s third party sources provide data to JBC on an “as-is” basis and accept no responsibility and disclaim any liability relating to reliance on or use of their data by any party. Data sourced as SuDeP (JBC’s in-house Supply-Demand-Price forecasting model) or JBC Derived Data may be partly based on EIA and various national statistical entities; JODI; the MODS, ADS or MGDS (http://data.iea.org) services developed by the IEA, © OECD/IEA 2016; OPEC; and other industry sources, but the resulting work has been prepared by JBC Energy and does not necessarily reflect the views of the original data providers. To the extent that JBC Energy comments or opines on data obtained from third party sources, these comments or opinions shall be understood as JBC Energy’s own comments or opinions unless a third party is quoted as their source.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 2
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Tuesday, 22 November 2016 www.jbcenergy.com Slide 3
Introduction and Key Points
• Challenging Years: – The market from 2010 to 2014
• Squeeze in medium-sour crude supplies • Libyan outage shakes up light-sweet market, but WAF to the rescue • Refiners compete against Russia, the Middle East and USGC
• Rise of a Buyers’ market: – The market in 2015 and 2016
• Medium-sour oversupply (Iraqi growth then return of Iran) • Light-sweet supplies shake-up • Improved refining prospects
• Oh crystal ball - a look at 2017: – 2016 trends to continue
• Mediterranean as evolving crude hub • Midstream prospects look good given continued contango • A whole lot of arb • Refiners to profit from buyers’ crude market
Tuesday, 22 November 2016 www.jbcenergy.com Slide 4
The Rise of a Buyers’ Crude Market
Tuesday, 22 November 2016 www.jbcenergy.com
The Rise of a Buyers’ Crude Market
The European crude slate has changed radically over the past five years
Tuesday, 22 November 2016 www.jbcenergy.com Slide 6
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1
Latin America West Africa
Saudi Arabia Iraq
Change in Crude Supplies to Europe: 2015 vs 2010 [million b/d]
More Supplied to Europe
Source: IEA, JBC Energy
-2.00
-1.80
-1.60
-1.40
-1.20
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
1
North Sea Iran
Syria Russia
Less Supplied to Europe
The Rise of a Buyers’ Crude Market
In the Mediterranean, medium-sour crude availability turned tight due to lower volumes from Iran, Syria and Russia. Frequent outages and a spat between Baghdad and the KRG also made Kirkuk barrels less attractive. 2014 was the low point.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 7
0
0.5
1
1.5
2
2.5
3
3.5
4
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Syria
Iraqi Kirkuk Availability
Libya
Iran
Russia (Urals Med)
Of which medium or heavy-sour
Key Reductions in Mediterranean Baseload Crude Imports [million b/d]
Mediterranean baseload crudes were squeezed in the period
from 2010 to 2015
Source: JBC Energy based on IEA data from Monthly Oil Data Service © OECD/IEA 2016, www.iea.org/statistics. License: www.iea.org/t&c; Reuters, Iraqi Ministry, KRG
Missing volumes were replaced mainly with crude from WAF,
LatAm, and Iraqi Basrah
Low Point
The Rise of a Buyers’ Crude Market
The 2014 low point in availability of medium-sour feedstock worsened margins, leading to lower intake in that year. Since then, things have improved markedly!
Tuesday, 22 November 2016 www.jbcenergy.com Slide 8
3,200
3,400
3,600
3,800
4,000
4,200
4,400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2017 5-Year Avg 2016
2015 2014 2013
European Med - Crude Intake ['000 b/d]
The Rise of a Buyers’ Crude Market
Iran sanctions were lifted this year, while Iran and Saudi Arabia are seeking to maintain current volumes
Tuesday, 22 November 2016 www.jbcenergy.com Slide 9
0
100
200
300
400
500
600
2011 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Hungary Portugal EU'2011
Poland ARA (NL, BE) Italy
Romania Greece Spain
France IEA MODS
Expected Arrivals of Iranian Crude into EU countries ['000 b/d]
Nov-Dec data preliminary
Source: JBC Estimate based on McQuilling, Platts, Reuters, IEA © OECD/IEA 2015 ADS, IEA Publishing. Licence: www.iea.org/t&c, SuDeP
EU sanctions lifted mid-January; first cargoes shipped mid-Feb for
March arrival
The Rise of a Buyers’ Crude Market
Caspian crude availability is reaching new highs. Moreover, Increases are structural due to start up of Lukoil’s Filanovsky and the Kashagan restart (current K-output around 100 kb/d; operator plans to boost production next year to around 350 kb/d)
Tuesday, 22 November 2016 www.jbcenergy.com Slide 10
0
200
400
600
800
1000
1200
1400
Jan '14 Apr '14 Jul '14 Oct '14 Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16
CPC Blend BTC Blend
Caspian Crude Exports ['000 b/d]
Source: Argus, Platts, Reuters
December 2016 loadings are preliminary
The Rise of a Buyers’ Crude Market
Russian declines to the West have also reversed. In fact, FSU East Crude balance set to surge and ENTIRE excess seen getting exported via the Black Sea and Baltics
Tuesday, 22 November 2016 www.jbcenergy.com Slide 11
6,000
6,500
7,000
7,500
8,000
8,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5-Year Range 5-Year Avg 2015 2016 2017
FSU EAST - Crude Balance ['000 b/d]
Source: JBC derived data
The Rise of a Buyers’ Crude Market
This is because Eastern infrastructure has hit a bottleneck with anti-drag agents already being used to boost ESPO pipeline flows. As demand in Daqing area stable, a real easing of the bottleneck can only be expected in 2020
Tuesday, 22 November 2016 www.jbcenergy.com Slide 12
Purpe
Taishet
Tomsk
Achinskrefinerery
Daqingrefinery
Khabarovskrefinery
to Perm
to Samara
CHINA
CHINA
Transneft's ESPO Trunk Crude Pipeline System: Export Infrastructure to the East
Source: Transneft, various industry sources
KAZAKHSTAN
Kuyumba-Taishet Pipeline
Zapolyarye-PurpePipeline
Vankor-PurpePipeline
Pavlodarrefinery
Atasu
Alashankou
Omsk refinery
Komsomolsk spur 160,000 b/d in 2018
Kozmino
ESPO-2
expansion from 600,000 b/d to
1 million b/d by 2020
Current capacity at 400,000 b/d (Russia) and
300,000 b/d (China);scheduled expansion to 600,000 b/d by late 2017
ESPO-1 expansion from 1.16 million b/d
to 1.6 million b/d by 2020
Mohe
Skovorodino
Komsomolskrefinery
Kozmino port capacity expansion from
600,000 b/d to 730,000
b/d by late 2017
The Rise of a Buyers’ Crude Market
Further near-abroad supply also coming from WAF and Brazil (North Sea gains required to offset high decline rates)
Tuesday, 22 November 2016 www.jbcenergy.com Slide 13
-50
0
50
100
150
200
250
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
Canada oil sands North Sea
US GoM Brazil
Russia WAF
Asia Kashagan
Monthly Additions of New Crude Streams (excl. Middle East & US Shale - 3MMA) ['000 b/d]
Source: JBC Energy
The Rise of a Buyers’ Crude Market
The shale link: a surprise rebound in US shale would free up more WAF crude for Europe and Asia in a repeat of the trend seen in 2011-14
Tuesday, 22 November 2016 www.jbcenergy.com Slide 14
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Canada & Mexico Central & South America EuropeAfrica Asia Middle EastFSU East U.S. Crude Production y-o-y
Y-o-y Changes to U.S. Crude Oil Imports & Production ['000 b/d]
Source: EIA, JBC Energy calculations
The Rise of a Buyers’ Crude Market
Availability of Latin American crude is also high, while less is going into the US
Tuesday, 22 November 2016 www.jbcenergy.com Slide 15
0%
10%
20%
30%
40%
50%
60%
70%
Jan '13 Jan '14 Jan '15 Jan '16
Mexico Brazil
Exported Share of Domestic Crude Production ['000 b/d]
Source: SIE, ANP-300
-200
-100
0
100
200
300
400
Jan '14 Jan '15 Jan '16
Europe
Far East
Other Americas
US
Y-o-y Change in Mexican Crude Exports ['000 b/d]
3-month moving average
The Rise of a Buyers’ Crude Market
High crude availability has given rise to a buyers’ market and hence deeply discounted crude
Tuesday, 22 November 2016 www.jbcenergy.com Slide 16
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012 2013 2014
2015 2016
Arab Light OSP Adjustment (FOB Ras Tanura) vs. ICE BWAVE in the Med [$/bbl]
Source: Saudi Aramco
Discounts have been widening in spite of low flat prices
Some Reasons for Optimism in Downstream
Heavier crudes have become much cheaper relative to Dated Brent over the past two years (ratio analysis used here to account for flat price fluctuation). Light-sweet Saharan Blend has seen no such depreciation. Refiners profit from flexible crude procurement!
Tuesday, 22 November 2016 www.jbcenergy.com Slide 17
0.75
0.80
0.85
0.90
0.95
1.00
1.05
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Urals Med vs Dated Brent Arab Light (Med) vs ICE BWAVE
Basrah Light vs Dated Brent Mars vs Dated Brent
Saharan Blend vs Dated Brent
Ratio of Crude vs Brent Benchmark [ratio]
Source: JBC calculations based onPlatts and ICE data
The value of heavier crudes has clearly declined since the Nov'14
shift in OPEC policy
The Rise of a Buyers’ Crude Market
This has helped boost refining margins in the past two years. 2016 margins are still pretty solid, especially when considering actual crude baskets rather than benchmarks (discounts in terms grades, deep Urals diffs, supply competition focussing generally on Europe).
Tuesday, 22 November 2016 www.jbcenergy.com Slide 18
-5.00
0.00
5.00
10.00
15.00
Oct-12 Oct-13 Oct-14 Oct-15 Oct-16
Spread
Rotterdam benchmark-based (Brent)
Rotterdam 33 API basket, average setup
Rotterdam Refining Margins (10-day Avg) [$/bbl]
Source: JBC Energy (metholodogy & calculations), Haverly, McQuilling, Platts
2017 Outlook
Tuesday, 22 November 2016 www.jbcenergy.com
OPEC path difficult. Plenty of questions surround exemptions, compliance, distribution and measurement of any potential freeze/cut. However, the willingness to do something is clearly there.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 20
2017 Outlook
27
28
29
30
31
32
33
34
35
36
37
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Targeted production range Output assessment range* Call on OPEC - OPEC
Call on OPEC - IEA Call on OPEC - JBC Energy OPEC output - JBC Energy
OPEC Output, Call on OPEC [million b/d]
Source: JBC Energy, OPEC, based on IEA data from Monthly Oil Data Service © OECD/IEA 2016, www.iea.org/statistics, Licence: www.iea.org/t&c; as modified by JBC Energy
*includes assessments from IEA, EIA, OPEC secondary sources
and OPEC direct communication
2017 Outlook
Current spread between physical and future crude very wide. Expected to narrow on OPEC decision, one way or the other. But oversupply so large that contango expected to remain in place throughout 2017
Tuesday, 22 November 2016 www.jbcenergy.com Slide 21
-4.00
-2.00
0.00
2.00
4.00
Jan '14 Apr '14 Jul '14 Oct '14 Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16
ICE Brent 1st vs 3rd
Dtd Brent vs 3rd Mth Brent
Market Structures: Physical and Future Brent [$/bbl]
Source: Platts, ICE
1. Spread between physical and futures wide in 2016 (reflects different market interpretations)2. Given physical balances, contango expected to remain throughout 2017
2017 Outlook
In fact, global storage has increased by around 1 billion barrels in the past 3 years, but a good 500 million barrels of this is crude in China.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 22
-400
-200
0
200
400
600
800
1000
1200
Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16
Other Products
Fuel Oil
Gasoil/Diesel
Jet/Kero
Gasoline
Naphtha
LPG
NGL and Other Feedstocks
Crude Oil Stocks
Crude Oil Stocks, China
Crude Oil Stocks, US
Global Stocks Surplus to Q1 2014 [million barrels]
Crude stocks have built by 240 million barrels, products by 120 million barrels (middle distillates
by 45 million barrels)
Global Stocks Surplus to Q1 14, Main Products [million barrels]Global Stocks Surplus to Q1 2014 [million barrels]
Source: JBC Derived Data
Global Stocks Surplus to Q3 13 by Stream [million barrels]
Crude stocks have built by 310 million barrels, products by 120 million barrels (middle distillates
by 75 million barrels)
2017 Outlook
Our crude and condensate balance shows significant surpluses over January to August 2017 – clearly outpacing 2015 and 2016 observations – due to the new supply streams. This should keep a lid on any upside to prices.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 23
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5-Year Range 5-Year Avg 2015 2016 2017
WORLD - Crude Balance ['000 b/d]
Source: JBC derived data
2017 Outlook
In other words, the market is set to move from a temporary rebalancing in 2016 to sizable surpluses again in 2017, especially from the crude side, which should pressure oil prices to a certain extent.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 24
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q3 16 Q1 17 Q3 17 Q1 18 Q3 18
JBC EnergyIEAOPECEIA
Our JBC implied stockbuild is the difference between JBC assessments of global feedstocks supply and final
product demand, using a country-by-country and stream-by-stream approach. JBC Energy OPEC
production estimates are used for IEA and OPEC figures as of Q4 2016.
Implied Global Stockbuild/draw [million b/d]
Source: JBC Energy, IEA, EIA, OPEC
2017 Outlook
For the Mediterranean and European markets, lengthening balances in West of Suez clearly indicate more of the same in 2017 as in 2016 and we should see even more arbitrage from the Atlantic Basin to Asia.
Tuesday, 22 November 2016 www.jbcenergy.com Slide 25
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17
East vs West
East of Suez Balance
West of Suez Balance
East of Suez vs West of Suez Crude & Condensate Balances ['000 b/d]
We expect the east of Suez balance to be tighter
throughout 2017Source: JBC Derived Data
2017 Outlook
Consequently we expect inter-regional arb spreads to facilitate increased flows out of the oversupplied region
Tuesday, 22 November 2016 www.jbcenergy.com Slide 26
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17
Brent/Dubai EFS Dated Brent vs LLS M-2 (London)
Source: Platts, PVM, ICE, JBC Energy estimate
Inter-regional Crude Differentials [$/bbl]
Weak Brent to support arbitrage prospects for Brent-related grades
Thank you!