World Markets in the Approach to War: World Markets in the Approach to War “The Baseline” Presenter’s Name
Title Department
Brent Oil Prices: Brent Oil Prices
Recent Oil Market Trends : Recent Oil Market Trends 2000-2002 Growth of World Oil Consumption +0.2
Growth of Non-OPEC output +2.2
Change in OPEC 10 crude production - 2.1
Iraqi growth - 0.5
Other +0.3 Million b/d OPEC 10 Oil Production Million b/d
Recent Oil Market Developments: Recent Oil Market Developments November December January February March OPEC overproduction Venezuelan strike
OPEC rein in overproduction Falling inventories
Cold weather OPEC edge up output War fears grow
Further inventory falls
More cold weather Venezuelan output edges up
OPEC supply promises Venezuelan strike continues War?
Venezuelan Output and Oil prices : (Mb/d) Source: BP estimates. Includes syncrudes, condensates, and NGLs $/bbl OPEC meetings Venezuelan Output and Oil prices
OPEC Crude Production: OPEC Crude Production
Oil Inventories OECD Total Commercial Inventories : Oil Inventories OECD Total Commercial Inventories Mbbls
Impact of War Upon Oil Markets: Impact of War Upon Oil Markets Loss of Iraqi production
Loss of production outside Iraq?
Compensating production increases
Other effects:
Dislocation (e.g. tankers)
Precautionary or panic buying
Use of official strategic oil reserves
Iraqi Production and Exports: Iraqi Production and Exports mb/d
Production at Risk in Event of War?: Production at Risk in Event of War? Border fields
Military action
Sabotage
OPEC Surplus Production Capacity Feb 2003: OPEC Surplus Production Capacity Feb 2003 Total: 2.66 Mb/d 1 March 2003 Position
Iraq Exports 2.0
Venezuelan Exports 1.3-1.7
All Non-OPEC capacity assumed to be utilised 100%.
Maximum Withdrawal Profile from OECD Strategic Reserves: Maximum Withdrawal Profile from OECD Strategic Reserves Source: IEA
Oil Markets in 2003/4: Oil Markets in 2003/4 2003/4 fundamentals weak as non-OPEC supply growth exceeds consumption growth
Venezuelan average output likely to fall in 2003
Issue is “sharing out” a fixed volume within OPEC – in face of changing circumstances
y-o-y increment (million b/d)
Other Energy Issues: Other Energy Issues US natural gas markets tight – no potential for switching from oil back into gas
Japanese nuclear problems boosting oil demand
Low oil product inventories imply consumers unlikely to be shielded from crude price rises
Impact of War on Global Economy How does it work?: Impact of War on Global Economy How does it work? Confidence effects:
Consumers
Business
Financial markets
Possible oil price effects
Fiscal costs of war
War and the Global Economy Oil has declined in importance – but still matters: War and the Global Economy Oil has declined in importance – but still matters *World: excluding Former Soviet Union
War and the Global Economy: War and the Global Economy Today Post-war Weak confidence Higher oil prices Productivity growth Low interest rates Low inflation Japanese and German structural constraints Less uncertainty? Lower oil prices Fiscal
stimulus International imbalances Dotcom hangover ??
Conclusions: Conclusions Oil markets approaching war with low stocks, impaired Venezuela and high prices ……
….. but world oil demand growth continues to be fully supplied by non-OPEC production growth
War disruption potentially manageable through excess OPEC capacity and strategic stock release
Post war impossible to forecast but:
War premium in oil price likely to erode
Iraqi production growth likely to be slow
Venezuela still operating below previous capacity
World economy inhibited by war uncertainty. Benign peace has potential to improve growth.