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Suwin Sandu
In the first half of 2009, the oil price in West Texas Intermediate (WTI) terms averaged US$51 a barrel, a 54 per cent decrease from the first half of 2008. In February 2009, oil prices traded as low as US$35 a barrel, but by the end of the June quarter had doubled and were trading at more than US$70 a barrel. During the September quarter, oil prices remained relatively stable, trading between US$60 a barrel and US$75 a barrel.
The relative stability of oil prices over the past few months reflects a combination of downward pressure from high OECD stocks and OPEC spare capacity and upward pressure from market expectations of higher oil demand in late 2009 and 2010 associated with an improvement in economic conditions.
The WTI oil price is forecast to average around $70 a barrel for the remainder of 2009 and $72 a barrel in 2010, with significant fluctuations expected to continue. Downward pressure on prices could be exerted by OECD stocks, which are expected to remain high until oil consumption increases significantly beyond 2010.
OECD stocks were equivalent to 98 days of consumption at the end of June 2009, which is 19 per cent above the average for the past 10 years. In particular, oil stocks in the United States have increased continuously since mid-2008, which is the longest consecutive rise since 1979-80. Further, if hurricane activity in the Gulf of Mexico in the next few months is below average, as currently forecast by the US Weather Services International, US oil stocks could increase further. OPEC spare production capacity is also at its highest in many years and production from new fields in non-OPEC producing countries could also limit significant price increases.
However, significant upward pressure could emerge in response to a substantial rise in oil consumption as a result of markedly stronger than assumed global economic growth. Strong support for higher oil prices could also come from improved sentiment and speculative interest in the market, especially if the outlook for global economic activity continues to improve in the short term.
An important source of demand during the first three quarters of 2009 has been the build-up of strategic stocks by a number of countries. According to Facts Global Energy, market information suggests an additional 140 million barrels of oil could be added to global stocks by the end of this year, with another 110 million barrels possible in 2010. If this increase eventuates, it would be the most significant build-up in world oil stocks since 1981.
The Japanese Government has recently agreed with the United Arab Emirates, and is currently negotiating with Saudi Arabia, to purchase crude oil to add to its strategic stocks. Similarly, in the European Union, total strategic stocks are expected to increase by 20 million barrels this year and another 10 million barrels in 2010.
Oil stocks in non-OECD economies are also likely to increase. For example, China is pursuing plans to increase its strategic oil stocks. The Chinese Government is currently expanding its crude oil storage capacity, with construction of the first phase recently completed, leading to an increase in its total oil storage capacity, to exceed 100 million barrels. China’s total strategic oil storage capacity could rise further in 2010.
In 2009, world oil consumption is forecast to fall by 2 per cent to average 84.2 million barrels a day, largely reflecting the effect of the global economic downturn. World oil consumption is forecast to increase at a modest rate in 2010 to 85.2 million barrels a day, underpinned by increased global economic activity.
Non-OECD oil consumption in 2009 is forecast to remain similar to 2008, before increasing by
2 per cent to 39.5 million barrels a day in 2010. China and the Middle East are expected to be the main drivers of growth in global oil consumption.
In the first half of 2009, China’s oil consumption is estimated to have averaged around 8.1 million barrels a day, which was an increase of 2 per cent compared with the same period in 2008. Rising oil demand was underpinned by higher industrial use, particularly in the petrochemical industry, and higher transport consumption which is a reflection of increased vehicle sales. A similar growth rate in China’s oil consumption is expected in the second half of 2009. In 2010, China’s oil consumption could rise by a further 4 per cent to average 8.5 million barrels a day, being supported by robust economic growth and the build-up of strategic stocks.
In the Middle East, oil consumption grew by around 1 per cent in the first half of 2009 compared with the same period last year. Higher oil consumption in the region reflects the continued use of oil as an energy source in the petrochemical and construction industries as well as for electricity generation. The use of oil for electricity generation reflects the significant availability of oil in the region and, to a lesser extent, policies that encourage gas to be exported. Middle East oil consumption is forecast to grow by 2 per cent for 2009 as a whole, and by a further 4 per cent in 2010, to an average of 7.5 million barrels a day.
Oil consumption in OECD economies in the June quarter 2009 declined by around 7 per cent year on year. This was the fifth consecutive quarterly decline in oil consumption. For 2009 as a whole, OECD oil consumption is forecast to fall by 5 per cent to an average of 45.2 million barrels a day. Any potential increase in demand for oil for transport fuel or heating purposes is expected to be offset by falling demand for fuel oil used for industrial purposes. In 2010, OECD oil consumption is forecast to increase by around 1 per cent to 45.7 million barrels a day, being underpinned by modest economic growth.
In North America, oil consumption in 2009 is forecast to decline by 4 per cent to average 23.2 million barrels a day. In the United States, which accounts for 80 per cent of North American demand, oil consumption has been falling since September 2008. However, in the remainder of 2009, and in 2010, an assumed gradual economic recovery is expected to support higher oil consumption. In 2010, oil consumption in North America is forecast to increase by around 1 per cent to 23.4 million barrels a day.
In the first half of 2009, oil consumption in the European Union fell by 4 per cent year on year. This was a reflection of lower consumption for industrial use. A continuation of relatively weak economic activity throughout the European Union will be the main factor influencing oil demand in the short term. In 2010, oil consumption is forecast to increase at a modest rate to 14.7 million barrels a day, given the assumed gradual pace of economic recovery in the region.
In 2009, world oil production is forecast to fall by 3 per cent to an average of 84.2 million barrels a day which is in line with weaker consumption in the year. World oil production is forecast to increase in 2010 to average 85.2 million barrels a day, as producers respond to increased world demand.
In the first half of 2009, OPEC’s crude oil production averaged 28.5 million barrels a day, which was a decline of 9 per cent from the corresponding period in 2008. The fall in OPEC output reflects its decision to cut back production in the wake of lower oil prices. As a result of reduced production, OPEC’s spare capacity rose to around 5.5 million barrels a day in July 2009, the highest since July 2002. The high amounts of spare capacity imply OPEC should be able to increase output relatively quickly if necessary.
In addition to the high amount of spare capacity, a number of new production fields, particularly in Saudi Arabia, could start production in the short term. These include Khurais (capacity 1.2 million barrels a day), Shaybah (250 000 barrels a day) and Nuayyim (100 000 barrels a day). Also, the Khursaniyah field could increase production to 500 000 barrels a day in the remainder of 2009 and 2010.
In the first half of 2009, non-OPEC supplies averaged 51 million barrels a day, which is largely unchanged from the same period in 2008. In OECD economies, increased production in the United States was offset by falling production from fields in the North Sea. Non-OECD oil production increased by 1 per cent over the same period, reflecting higher output from Brazil, Azerbaijan and Kazakhstan.
Non-OPEC supply is forecast to increase further in the remainder of 2009 and 2010. Increased production in Brazil, the Russian Federation and the United States will offset falling production in Mexico and the North Sea. Crude oil production in North America is forecast to increase by around 1 per cent in 2010. Higher production in the United States is expected to be larger than the natural decline in production from the world’s second largest producing field (Cantarell) in Mexico. US supply growth is expected to be supported by the start-up and ramping up of projects, including Tahiti (capacity of 125 000 barrels a day), Shenzi (100 000 barrels a day) and Thunder Hawk (45 000 barrels a day).
Brazil is expected to be one of the fastest growing crude oil producers in the short term. Production growth in late 2009 will be underpinned by the Praque das Conchas project, which started up in July 2009, and is expected to reach its peak production of around 100 000 barrels a day before the end of the year. The start-up of other new fields such as Jabuti, Piranha and Tupi in 2010, with a combined production capacity of about 150 000 barrels a day, will support further crude oil production growth in Brazil.
The Russian Federation’s crude oil production is also expected to increase in 2010. A number of new projects were completed in the first half of 2009, including the Vankor (capacity 400 000 barrels a day) and Alinskoye fields in Eastern Siberia. These projects are expected to feed into the Eastern Siberia-Pacific Ocean pipeline to supply markets in the Asia Pacific region.
In 2008-09, Australia’s crude oil and condensate production is estimated to total 27.8 gigalitres, which is an increase of 9 per cent from 2007-08. This increased production was a result of the start-up of the Angel (capacity 50 000 barrels a day) and Vincent (50 000 barrels a day) fields as well as the ramp up of capacity at the Stybarrow field (80 000 barrels a day). A fire on the floating, production, storage and offtake vessel at the Vincent field in April 2009, and the start of scheduled maintenance at the Woollybutt field in May, limited further increases in crude oil production for much of the June quarter.
In 2009-10, Australia’s oil production is forecast to decline by around 4 per cent to 26.7 gigalitres. The only significant addition to production is expected to come from the Pyrenees oil field, which is scheduled to commence during the first quarter of 2010. Despite the Pyrenees field being large by Australian standards (peak production of 96 000 barrels a day), the effect of its initial output on total Australian production will be offset by continued maintenance at the Woollybutt field and the natural decline from other mature fields.
Australia’s oil exports increased by 4 per cent to 16.7 gigalitres in 2008-09. This estimated increase reflects an expectation that a significant proportion of production from fields in the Bonaparte and Carnarvon Basins was exported, given their proximity to Asian refining markets. In 2009-10, Australia’s crude oil export volumes are forecast to decline by around 3 per cent to 16.1 gigalitres as a result of lower production.
The value of Australia’s crude oil and condensate exports in 2009-10 is forecast to remain relatively stable at around $8.8 billion. Higher export values, because of higher oil prices, are expected to be offset by lower export volumes and an assumed appreciation of the Australian dollar against the US dollar.
Oil outlook |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
f |
2010 |
f |
% change |
|||||
| World | ||||||||||
| Production | mbd |
86.5 |
84.2 |
85.2 |
1.2 |
|||||
| Consumption | mbd |
86.3 |
84.2 |
85.2 |
1.2 |
|||||
| Trade weighted crude oil price |
US$/bbl |
94.60 |
57.57 |
68.68 |
19.3 |
|||||
| West Texas Intermediate crude oil price |
US$/bbl |
98.62 |
60.18 |
72.18 |
19.9 |
|||||
2008 |
2009 |
s |
2010 |
f |
||||||
| Australia | ||||||||||
| Crude oil and condensate | ||||||||||
| Production | ML |
25 537 |
27 789 |
26 680 |
– 4.0 |
|||||
| Exports | ML |
15 975 |
16 665 |
16 149 |
– 3.1 |
|||||
| – value | A$m |
10 484 |
8 758 |
8 766 |
0.1 |
|||||
| Imports | ML |
26 223 |
24 307 |
26 460 |
8.9 |
|||||
| LPG | ||||||||||
| Production | ML |
3 971 |
3 930 |
3 965 |
0.9 |
|||||
| Exports | ML |
2 589 |
2 427 |
2 577 |
6.2 |
|||||
| – value | A$m |
1 182 |
1 021 |
1 027 |
0.6 |
|||||
In 2008-09, Australia’s liquefied natural gas (LNG) exports reached 16.2 million tonnes, an increase of 13 per cent from the previous year. The increased exports mainly reflected the start-up of the fifth processing train at the North West Shelf project in September 2008. In 2009-10, Australian LNG exports are forecast to increase by a further 8 per cent to 17.6 million tonnes. This forecast increase reflects a full year of operation at the fifth train at the North West Shelf project, offsetting the scheduled maintenance at trains two and four in September 2009.
LNG contract prices usually follow movements in oil prices but with some lags. In 2008-09, the value of Australian LNG exports was $10.1 billion. Reflecting lower LNG prices relative to prices in 2008-09, the value of exports is forecast to fall by 29 per cent to $7.1 billion in 2009-10.
Gas outlook |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
2007-08 |
2008-09 |
s |
2009-10 |
f |
% change |
|||||
| Australia | ||||||||||
| Production | Gm3 |
41.7 |
44.2 |
47.5 |
7.5 |
|||||
| LNG exports | Mt |
14.33 |
16.25 |
17.61 |
8.4 |
|||||
| – value | A$m |
5 854 |
10 086 |
7 138 |
– 29.2 |
|||||