Roland Berger-Studie: Niedriger Ölpreis setzt Förderländer und Ölfirmen unter Druck - Prognosen zunehmend unzuverlässig (DOKUMENT)

8/19/2019 Roland Berger-Studie: Niedriger Ölpreis setzt Förderländer und Ölfirmen unter Druck - Prognosen zunehmend unzuverlässig (DOKUMENT)

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Information document

Amsterdam, February 2016

2016 oil price

forecast: whopredicts best?



220160209 oil price forecast 2016 v2.pptx

Since 2007, Roland Berger has published a yearly overview of allavailable oil price forecasts

Last year's results

USD 95 forecast1) for 2015

Nigeria replaced Russia in the top 3

86

110

90

Ø 95

Nigeria

Mexico

Saudi Arabia

10%

Nigeria 13%

Mexico 10%

Saudi Arabia

Period 1999-2014

Average absolute year-on-year oil price forecasting1) error [%]

1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices and for average budget deviations

> Since 2007, Roland Berger has published ayearly study on the oil price forecast

> Major oil producing countries use a forecasted

value of the oil price in their annual budgets

> We have studied the forecasting track recordsof the nine largest oil-exporting countries from1999 to 2015

> The budgeted oil prices of the top 3 mostaccurate countries are used to forecast the oil

price for the year ahead

> The oil price forecast of the countries iscompared to that of the major energyinstitutions: NYMEX, EIA and IEA

Roland Berger study of oil price forecasts, January 2016, WTI based




In 2015 the average price for a barrel was USD 49 – nearly half ofwhat the best forecasting countries had budgeted

Source: Utah Geological Survey; Union Pacific

0

50

100

150

jan-09 jan-08 jan-13 jan-06 jan-07 jan-16 jan-15 jan-14 jan-12 jan-11 jan-10 jul-09 jul-06 jul-07 jul-15 jul-12 jul-14 jul-11 jul-13 jul-08 jul-10

93

492015 average

2014 average

USD 49

USD 95

2015average

Top 3forecast

Development of monthly WTI averages [USD/barrel], Jan 2006 –

Dec 2015




This year's study not only contains the accuracy of last year'sforecast and next prediction, but also analysis of market dynamics

1 Analysis of the accuracy of countries and institutions as forecasters ofthe oil price in 2015 and aggregate over the last years

ACCURACY OF OILPRICE FORECASTS

2CHANGING

MARKETDYNAMICS

Analysis of the changing market dynamics since the USA has become amajor exporter of (shale) oil and analysis of the current oversupply in theglobal oil market

3FUTURE OIL

PRICES Analysis of oil price forecast of countries and institutions and underlyingpolitical and market dynamics

Elements of this year's study


http://slidepdf.com/reader/full/roland-berger-studie-niedriger-oelpreis-setzt-foerderlaender-und-oelfirmen 5/23520160209 oil price forecast 2016 v2.pptx

Institutions have become the better price forecasters – For 2016they predict an average of USD 46 per barrel. Are they right again?

Over the last 15 years, the top oil exporting countries have outperformed the institutions(NYMEX, IEA, EIA) in correctly forecasting the oil price

Over the last 5 years however, the institutions have forecasted the oil price significantly betterthan the countries

Since the start of the shale gas boom, the US has not only been one of the major producers ofoil, but is also exporting significant amounts of petroleum products

Oil producing countries – Saudi Arabia in particular – have often adapted their oil output toprice levels, thereby influencing the oil price.

The dynamics have changed since American shale oil entered the equation. North Americanshale oil is moving towards being the swing supply

Despite requiring a significantly higher oil price to balance their budgets, Saudi Arabia and otheroil-producing countries have refused to cut down production, at least partly in fear ofencouraging American producers. As a result, the oil market has oversupply and the price ishistorically low

What will the future bring? Will the oversupply be curtailed by OPEC countries?

1

46

53

Institutions

Top-3 countriesPrediction for the2016 oil price[USD/barrel]

Accuracy of oilprice forecasts

2

Changing marketdynamics

3

Future oil prices

Improved performance of institutions vs. countries in the oil price forecast



1. Accuracy of oil priceforecasts



Neither countries nor institutions accurately predicted the oil pricedecline of 2015

Source: Ministry of Finance of selected countries; EIA; NYMEX; IEA; Press reports

2015 forecast1) 2015 forecasting errorCountry

Actual

101%

56%

61%

41%

126%

122%

106%

99%

85%

76% 46%

41% Algeria

RussiaNigeria

Saudi Arabia

Iran

Kuwait

Venezuela

Norway

Mexico

NYMEX

EIA

IEA

69

7186

90

97

98

100

108

110

49

69

78

76

1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices and for average budget deviations; 2) Excluding crisis years 2001 and 2009 which saw

large swings in the oil price

1 Accuracy of oil price forecasts

Top-3 forecastersbased on 1999-20142) – Averageaccuracy 96%

Average accuracy53%

Absolute year-ahead oil price forecasting error, 2015 [%]



Since 2010 institutions forecast better than oil producing countries,but even so for 2015 everyone's forecast was way off

Source: Ministries of Finance of selected countries; EIA; NYMEX; IEA; Press reports


18

117

19

35

2124

1316

5

13108

12

11

19

2008200720062005200420032002

Top-3 CountriesInstitutions

1) Top-3 countries based on total forecasting accuracy up to year n-1; 2009 excluded as this was a shock year with a large swing in the oil price, leadingto considerable inaccuracies in each of the forecasts

"Countries predict best" "Institutions predict best"

53

365

11

2

96

26

12

18

10

4 6

14

201520142013201220112010

Averageinstitutions'

accuracy

Average top-3countries'accuracy

Yearly absolute error, oil price forecast, institutions and top-3 countries1 , 2002-2015 [%]



Countries' predictions for the 2015 oil price were particularly far off – Almost all countries performed worse than their 5-year average

Saudi Arabia

Russia

Norway

Iran

Venezuela

Kuwait

Nigeria

Algeria

Mexico

136

85

25Ø 24

28

Ø 25

2015

46

1627

2011

10

66Ø 32

122

12 13

Ø 53

99

2015

46

24

45

2011

53

3

24 Ø 3111

106

11

1523

2011

Ø 41

2015

101

33 32

7308

76

Ø 19

20

2011

33

2015

Ø 28

4127 21

25 Ø 42

2015

126

2011

13 2123

Source: Ministries of Finance of selected countries; OPEC; Press reports


Forecasting errors or budget safety margin, 2010-2015 [%]



2. Changing marketdynamics



The rise of the institutions as better predictors coincides with the riseof the US as a major (shale) oil producer and exporter

2007 2008 2009 2010 2011 2012 2013 2014 2015

2,000

14,000

0

4,0006,000

10,000

8,000

12,000 USA

Saudi Arabia

Russia

Source: OPEC; EIA

2 Changing market dynamics

CRUDE OILPRODUCTION

EXPORTS (all

petroleumproducts)

2007 2008 2009 2010 2011 2012 2013 2014 2015

6,000

8,000

4,000

2,000

0

USA

Saudi Arabia

Russia

"Institutions predict best""Countries predict best"

Otherproducers inthis study

Crude oil production per country and US exports, 2007-2015 ['000 barrels/day]



The latest drop in the oil price is due to oversupply

Source: BP statistical review; IMF; Bernstein analysis and estimates; Roland Berger

Change in oil price (real)

Change in GDP

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0%

1%

2%

3%

4%

5%

6%

2 0 1 4

2 0 1 2

2 0 1 0

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

1 9 9 6

1 9 9 4

1 9 9 2

1 9 9 0

1 9 8 8

1 9 8 6

1 9 8 4

1 9 8 2

1 9 8 0

Over supply

Drop in demand

Left axis: change in oil price Right axis: change in GDP


• Most price drops are caused by a dropin demand related to stagnating GDPgrowth during a recession (1998 Asianfinancial crisis; 2001 tech bubble burst;2009 global financial crisis, etc.)

• Today's situation is similar to 1986 – There is no recession and the pricedrop is driven by oversupply

•1986 oil price shock was caused bystrong production growth in OPECcountries

• 2014 oil price shock mainly caused by American production, coupled by non-decline in OPEC countries

(Real) oil price development and GDP change during previous oil price drops

2 0 1 5



Brief periods of oversupply generally do not distort the price, butnow for 17 consecutive months there is more supply than demand

Oversupply Undersupply

Source: EIA; Roland Berger

Total World Consumption

Total World Supply98

96

94

92

90

88

2015201420132012

17 consecutive months in which supplyoutpaced demand

1.51.52.01.3

2.5

1.82.0

3.0

2.1

2.7

0.42.21.82.11.8

0.80.8

-0.2

0.81.00.50.8

0.20.5

-0.3-1.0

-0.8-0.4-0.1-0.5

0.70.4

-0.1

0.4

-1.2-0.3-0.4

-1.1-1.0-0.6

-1.4

-0.4-1.0

0.3

2.4

1.1

0.0

2.9

Average gap of1.8 m barrels/dayputting pressure

on the oil price


Global supply and demand of oil and net differential (million barrels/day)




Unlike during previous price shocks Saudi Arabia has notably notadapted its production volume to today's oversupply

Productionvolume

[millionbarrels/day]

Oil price[Arab Light;USD/barrel]

Source: OPEC; EIA

Last 6 months(Jun 2015 – Dec 2015)

3441454647

55

-39%

Jul-15 Aug-15 Sep-15 Oct-15 Dec-15Nov-15

During 2008 price drop(Jul 2008 – Dec 2008)

-13%

8.26

8.81 9.22 9.37 9.49 9.52

3950

69

98

114

133

-71%

Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08


> Within OPEC, Saudi

Arabia has

traditionally played the

role of the marginal

swing supplier

> During 2014, OPEC

univocally announced

that it would not cut

down production

> Market share

protection cited as

main driver of thedecision

Production volume and oil price, Saudi Arabia

-1%

10.19 10.28 10.19 10.29 10.29

Dec N/A




0

20

40

60

80

100

120

9080706050403020100

Cost [USD/barrel]

Supply [m barrels/day]

North American shale seems to have become the swing supply aslong as OPEC countries continue to maintain production levels

Source: OPEC; Roland Berger


RationaleGlobal 2015 supply curve1) by type

Onshore Middle East

Offshore shelf

Extra heavy oil

Deepwater

OnshoreRussia

Onshore RoW

Ultradeepwater

Oil sands

NA shale

Short-term total cost curve (OFS cost reduction)

Current total cost curve

Onshore (conventional)Typically has low total cost of production.Can be swing supply for political reasons,however, Saudi Arabia has not cut

production

OffshoreTypically long timelines and large sunkinvestments

Heavy oilRelatively low price, expected to continueto run under all price levels

Oil sandsThermal nature of operations force oilsands to keep running

Shale oil

Most dynamic production, quick impact onmarket from change in investment profile,development-to-production cycle is shortand has rapid decline rates

Potential swing supply / Other supply

Expansion

Contraction

ExpansionContraction

Global supply curve and possibility to be swing supply by resource type




3. Future oil prices




What will the future bring for oil prices? Expert opinions areinconclusive

Source: Press

Future oil prices3

We don’t anticipate a recovery in 2016because the growth of capacity will be largerthan the growth of demand

7-Dec-2015 -- Patrick Pouyanne, CEO atTotal

"We could see a price $30 to $40 by the middle of the yearand I think towards the end of the year it could be intothe $50s."

20 Jan 2016 -- Bob Dudley, CEO at BP

"…the market continues to look forsomething to support the prices, butactually there's nothing out there right at themoment"

12-Jan-16 - Andy Lipow, President at LipowOil Associates

" The oil prices we are seeing today are not sustainableand are going to settle at higher levels … and higher , in mymind, over the next few decades than the low $60s that werequire to make this deal a good deal"

11-Jan-2016 -- Ben van Beurden, CEO at Shell

"Oil could fall to $10 a barrel, but I don't think it would staythere. I think somewhere around $30 a barrel is probablya fair place to look for stabilization in the oil complex

12-Jan-2016 -- David Lebovitz, J.P. Morgan

" While we are increasingly convinced that the market needsto see lower oil prices for longer to achieve a production cut,the source of this production decline and its forcingmechanism is growing more uncertain, raising the possibilitythat we may ultimately clear at a sharply lower price withcash costs around $20 a barrel Brent prices."

11-Sep- 2015 -- Jeffrey Currie, Goldman Sachs

Selected quotes on oil price forecasts

Even lower Current levels Price rebound

" “ We think prices could fall as low as $10 a barrelbeforemost of the money managers in the market conceded thatmatters had gone too far."

12-Jan-2016 – Analyst at Standard Chartered

" Crude prices will start to recover in 2016as output fromthe U.S. and other non-OPEC producers declines."

7-Dec-2015 -- Ryan Lance, CEO at Conoco




When oil prices are very low oil-exporting countries reduce thesafety margin they apply when forecasting the price for their budget

Changes in use of safety margin by oil-exporting countries

> The Roland Berger annual oil price forecast study is based on the forecasting track records of the ninelargest oil-exporting countries from 1999 to 2015

> Historically oil-exporting countries have used what we call a forecasting error or safety margin in their

budget assumptions i.e. they budget for a lower oil price than they actually expect. This safety margindiffers per country

> In the year following a significant drop in oil prices we have seen that the applied safety margin islower most likely because a low oil price leaves less room

> For 2016 we have assumed that oil-exporting countries have again used a lower safety margin as theoil price is at its lowest levels since 13 years

Future oil prices3

F t il i




1) Updated top-3: based on 1999-2015, previously Mexico was included but Mexico now hedges the price for most of their exports. To improve comparability, forecasts are adjusted for the

ratio of local oil prices to WTI prices (2012-2014) and for average budget deviations (1999-2014, excluding 2001 and 2009); 2) IEA's forecast is based on OECD Economic Outlook

The oil price is now ~USD 30, top-3 forecasting oil producers predictUSD 38 – 53, institutions predict an average price of USD 39 – 50

Source: Ministries of Finance; National banks; Press reports

Future oil prices3

~30

WTI oil price as

of Jan 2016

Predictionof top-3forecastingcountries1)

Prediction of

institutions

46

39

50

49

Average

EIA

IEA

NYMEXBoth countriesand institutionsexpect the oilprice to rise

again

2015 WTI price forecasts1) [USD/barrel]

38

≤48

Russia ≤ 61

Saudi Arabia ≤51

Average 38-53

Nigeria



3 Politically determined prices: increase necessaryB




Alternatively, US producers might cut production, as ~50% of supplyis uneconomical around USD 50/barrel

3 Politically determined prices: increase necessaryB

1)Supply curve does not include condensates or NGLs. The dotted light blue line shows a supply curve adjusted 20% downward to reflect pressure onthe supply chain to reduce cost, though once the market balances, costs should increase. The supply curve is based on breakeven or total cost whichcovers exploration, F+D, production, SG&A, transport, taxes, etc.; 2) USD in 2012 dollars

Source: Roland Berger

0

10

20

30

40

50

60

70

80

90

100

110

120

9 8 7 6 5 4 3 2 1 0

Oil price (USD/barrel)

Production volumes (million b/day)

~50% of productioneconomically not

feasible

Conventional

Offshore

Eagleford

Bakken/Rockies

Permian

Gulf Coast

Mid-continent and Alaska

> With lower prices, unit costs willdecrease as E&Ps pressure thesupply chain

> EIA production forecast suggeststhat a production cut from the USis likely – and may even surpassthat of the OPEC countries

2015 US crude supply curve projection1)

Future oil prices3




Both institutions and oil producing countries forecast an average oilprice around USD 50, will they be right?

Future oil prices3

> The current oil price is at its lowest level since 13 years – The drop of the oil price at the end of 2014 wasnot caused by a recession, but by over supply

> Institutions (NYMEX, EIA, IEA) predict only a moderate rebound of the oil price (to an average of USD 46per barrel in 2016) – This suggests a continuation of the supply-demand imbalance – Arguments in favor of this scenario are slowly growing demand and the fact that production costs are

still below the current oil price in most OPEC countries

> The 3 countries that have provided the best oil price forecast predict a rebound (to between USD 38 and53 per barrel over the year) – This scenario requires that supply is curbed to remove the supply-demandimbalance – Arguments in favor of this scenario are the budget deficits of most OPEC countries that might force

them to act and the fact that ~50% of the US oil production is uneconomical at prices below

USD 50/barrel

> Over the last few years the institutions have predicted the oil price best. Are they right again, or willpolitical pricing mechanisms regain control?

Summary



Documents

Roland Berger-Studie: Niedriger Ölpreis setzt Förderländer und Ölfirmen unter Druck - Prognosen zunehmend unzuverlässig (DOKUMENT)