Friday, September 16, 2011

Oil Trade Report

CRUDE TRADE

Summary



• Global inter‐regional crude trade is expected to rise by a robust 3.2 mb/d during 2009–2015, equating to 1.5% compound annual growth, and taking the 2015 level to 36.5 mb/d. Compared with the June 2009 MTOMR, the outlook is brighter, with both annual growth and end‐forecast supply estimated significantly higher. This stems from two factors – an inordinately low 2009 baseline and improved demand prospects.


• The trade in crude oil will become more globalised as suppliers diversify into new markets. Latin America makes inroads into Other Asia and China, and the FSU will open up new eastward routes into the Pacific Basin. Despite this, the Middle East remains the key crude exporting region, with volumes set to grow from 15.9 mb/d in 2009 to 17.4 mb/d in 2015.


• The non‐OECD is expected to absorb all incremental supply over the forecast, with annual growth of 5.1%. China and India will drive this trend, with China in particular expected to raise imports by 9.2% annually from 2009 ‐ 2015. In comparison 0.7% annual decline is expected in the OECD, with only OECD Europe set to see growth in response to falling domestic production.


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Overview and Methodology


As in previous exercises, crude oil trade has been modelled as a function of oil production capacity and demand growth, incremental supplies being allocated on the basis of projected refinery expansions. On this basis, during 2009–2015 exports of crude oil are estimated to increase by 3.2 mb/d to 36.5 mb/d, equating to 1.5% annual growth. This compares with June 2009 growth of 0.1% annually. This difference stems from the relatively low 2009 baseline of 33.4 mb/d, characterised by depressed demand and OPEC production cuts, therefore leaving more potential for future export growth. Compared to last year, the short‐term outlook is also now seen brighter since the economic recession has proved less long‐lasting than initially expected, albeit uncertainties remain. Global crude trade in 2014 is now seen stronger at 36.0 mb/d versus last year’s estimate of 35.4 mb/d.


Crude oil trade is expected to become progressively more globalised with new long haul routes growing in importance as swing producers, notably the FSU and Latin America, increasingly turn their attention to diversifying exports towards Asia. The Middle East will remain the key oil exporting region, supplying 17.4 mb/d in 2015 and retaining its existing dominant crude trade position with a 47.6% share. However, a subtle shift is expected, with Africa set to become the second largest supplier on a global level and increasing its market share by 1.8% to account for 23.8% of global exports by 2015. This rise is notably at the expense of the third largest supplier, the FSU, which sees its share of the market cut by 2.0% to 18.3% during 2009 ‐ 2015. Latin America is also expected to increase its market share by 1.8% to 7.1% with other regions accounting for a combined 3.2% (‐1.5% over the forecast). In 2010 the bulk of regional export growth is expected to come from Latin America (+ 360 kb/d from 2009) but with increasing growth expected from Middle Eastern and African suppliers thereafter, a notable exception is 2014 where a dip in growth is expected in the Middle East, as the region sees significant new refining capacity commissioned.








Regional Trade


The Middle East retains its role as swing supplier, with output expected to reach 17.4 mb/d by 2015. This represents a rise of 1.5 mb/d from recessionary 2009 levels, unsurprising given that the region bore the brunt of OPEC production cuts, but a more muted export rise of 200 kb/d versus 2008. All incremental production from the region heads to Asia. Other Asia consolidates its position as the largest buyer of Middle Eastern grades, importing 5.0 mb/d by 2015 (+460 kb/d from 2009). The strongest growth in imports of Middle Eastern grades is expected to come from China, where an extra 1.2 mb/d is projected in 2015. Unlike last year’s exercise, OECD Europe imports 730 kb/d more Middle Eastern crude by the end of the forecast, stemming from a need to offset both declining domestic production and lower imports from the FSU. The traditional markets of the OECD Pacific and OECD North America will cut their demand for Middle Eastern grades by 500 kb/d each, although the OECD Pacific remains the Middle East’s second largest customer, importing 4.8 mb/d in 2015.




Africa will become an increasingly important swing supplier over the forecast. Compound annual growth of 2.8% and exports of 8.7 mb/d by 2015 are estimated. Incremental production should be absorbed by OECD North America and China, both of whose imports increase by around 700 kb/d during 2009‐2015. OECD North America will continue to be the largest customer for African crude with imports set to reach 2.7 mb/d by 2015. In the face of diminishing supplies of US onshore, light, sweet crudes, US Gulf Coast refiners may seek alternative, similar quality African supplies. Exports to OECD Europe are projected to remain static at 2.1 mb/d, with Other Asia set to rise by a modest 100 kb/d.






FSU exports are expected to fall by 100 kb/d during 2009 – 2015 overall, despite initially rising during 2009‐2011 by 270 kb/d. In contrast to the previous outlook, the FSU will diversify its exports with new eastward routes to Pacific markets. These trades could displace around 0.6 mb/d of existing deliveries into OECD Europe. Although eastbound volumes remain minor compared to those heading west, they fulfil a dual Russian aim of minimising reliance on transit countries and targeting lucrative Asian growth markets. Instrumental in this is the recently inaugurated East Siberia to Pacific Ocean (ESPO) pipeline which also facilitates the development of new east Siberian reserves. Cargoes from the Kozmino leg of the pipeline will likely be sold spot, rather than on a contract basis, allowing flexible sales to a variety of Asian customers and potentially the Americas. Russian exports to China will likely be more stable and sold on a contract basis or through swap deals with 300 kb/d expected via ESPO. Total FSU exports to China are seen at 1.0 mb/d. The Caspian region is also expected to significantly boost exports, notably when the giant Kashagan field starts up in late 2013, with a large proportion likely absorbed by China. Nonetheless, OECD Europe retains its position as the main destination of FSU crudes with 4.4 mb/d anticipated in 2015.




Latin America is projected to display the strongest growth globally, at 6.7% annually over the forecast. Total exports should rise from 1.8 mb/d in 2009 to 2.6 mb/d in 2015. All of the incremental production will be absorbed by Asian countries, where the addition of complex refinery capacity will facilitate processing heavy Latin American grades, notably from rising Venezuelan production expected to come on‐stream late in the forecast. Other Asia, notably India, has already started to take Latin American cargoes and by 2015 could import 550 kb/d, while China is expected to take regular shipments from 2012, ramping up to 400 kb/d by 2015. The diversification of markets will stem from various factors. Production from Colombia, Brazil and Venezuela is expected to rise over the forecast period and at the same time expansion of the Panama Canal to take larger carriers will reduce shipping times and improve the profitability of cargoes into Asia. Latin American suppliers will also likely have to look further afield since exports to the traditional destination of the US could stagnate at 1.6 mb/d over the medium term. It is anticipated that US refiners will increasingly look to imports of Canadian oil sands which could replace heavy Latin American grades.


Non‐OECD importers are forecast to enlarge their share of global imports from 35.1% in 2009 to 43.2% in 2015. Imports grow from 11.7 mb/d in 2009 to 15.8 mb/d in 2015, representing annual growth of 5.1%. China and Other Asia will drive this trend by absorbing incremental production. China’s imports should dramatically climb from 3.7 mb/d in 2009 to 6.4 mb/d in 2015, equating to +9.2% on a compound annual basis. On the same basis, Other Asia is projected to have annual growth of 3.1% as imports climb from 5.9 mb/d to 7.1 mb/d. Largely unaffected by the recession, imports into China and India rose by 600 kb/d and 100 kb/d respectively in 2009.


The OECD, in response to falling demand, is expected to reduce its absolute imports over the forecast by an average of 900 kb/d to 20.7 mb/d by 2015, representing annual decline of 0.7%. However, the picture is mixed with the OECD Pacific and OECD North America set to decline by 700 kb/d and 370 kb/d, respectively, while falling domestic production sees import requirements into OECD Europe rise by 170 kb/d during 2009–2015.


The dirty tanker market is expected to be underpinned by this globalisation over the medium term and partly allay fears of significantly depressed freight rates in the face of a looming oversupply of tankers ordered pre‐recession. The trend of increasing long‐haul voyages, especially cross‐Pacific, is expected to increase average journey times and therefore tie‐up tonnage for longer. Additionally, the construction of extra, export‐orientated refining capacity in Asia, notably India, is expected to support the clean tanker market over the medium term.

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