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Asia Oil and Gas Sector --------------------------------------------------------------------------------------
Triple digit oil – Raising oil prices to US$110/bbl (Brent) in 2013-14; LT raised to US$90/bbl
● The Credit Suisse Global Oil team is raising its oil price forecasts
by 19-25% (Brent) for 2011-12E and 38% for 2013-14E. LT oil
price is raised to US$90/bbl.
● Oil prices have risen in response to QE2, a demand shock and
the Middle East tensions. Assuming demand slows from 2H10’s
torrid pace, that QE2 ends and there is no major disruption to
Saudi production, we believe the next move could be down. From
there, the price outlook will likely depend on demand.
● We are positive on demand – we forecast an average growth of
1.8mbd p.a. for 2011-15, and there could be an upside risk to our
demand forecasts. We are also positive on supply – global
onshore supply is surprising, but the market may not be convinced
that supply can sustainably match underlying demand growth until
there is clearer visibility on offshore execution.
● With 3.6 mbd of spare capacity, there is still a cushion to meet
rising demand. Oil prices could strengthen in 2013-14 as demand
eats into spare capacity. Our US$110/bbl 2013-14 forecasts allow
for some spike risk but we do not assume a complete stock out. In
the longer term, high prices will likely be the cure for high prices
but this could take a while. Our mid-cycle price is US$90/bbl.
Bottom line – the price of fear. Crude prices have risen in response
to QE2, a demand shock that is now partly in the rearview mirror and
Middle East tensions. This makes forecasting especially tricky. Oil
above US$100/bbl includes a premium reflecting current fears over
the Middle East and future fears over capacity shortfalls. Assuming
demand slows from 2H10’s torrid pace, that QE2 ends and there is no
major disruption to Saudi production, we believe the next move could
be down. Brent oil prices could fall back to US$100/bbl. From there,
the price outlook will likely depend on demand. Oil prices could
strengthen in 2013-14 as demand eats into spare capacity.
Our central premise for global oil demand-supply
(1) We are positive on demand. We forecast an average growth of
1.8 mbd p.a. for 2011-15. The debate over the interplay of
income effects in the non-OECD, energy efficiency and natural
gas substitution will rumble on but the market will likely remain
concerned until the observed oil demand actually slows.
(2) There could be an upside risk to our demand forecasts.
OECD oil demand has been growing faster than expected. Non-
OECD demand could also surprise on the upside given
mismatches between primary energy supply and demand in key
economies such as China.
(3) We are positive on supply. Non-OPEC supply grew by 1.4 mbd
in 2010 although growth has recently slowed to only 800,000 bd
pa over the last three months. Outside of Libya, OPEC capacity,
particularly NGLs, is growing. Global onshore supply is surprising
due to both technology and activity. Oil supply will grow but the
market may not be convinced that supply can sustainably match
underlying demand growth until there is also clearer visibility on
offshore execution.
(4) Combining our supply and demand forecasts, we do not
believe spare capacity will fall to zero in our base case.
However, as spare capacity falls, the market could become more
concerned about potential shortfalls, particularly in the 2013-14
timeframe. We are formally shifting our oil price deck to reflect a
higher chance of a crude spike over the next three years.
Spare capacity buys policymakers a cushion. With 3.6 mbd of
spare capacity (assuming Saudi production meets Libya shortfalls),
there is still a cushion to meet rising demand. Our US$110/bbl 2013-
14 forecasts allow for some spike risk but we do not assume a
complete stock out. Were capacity to actually fall towards zero, we
believe US$140-150/bbl prices would be needed to crowd out demand.
In the longer term, high prices will likely be the cure for high prices but
this could take a while. Our mid-cycle price is US$90/bbl.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asia Oil and Gas Sector --------------------------------------------------------------------------------------
Triple digit oil – Raising oil prices to US$110/bbl (Brent) in 2013-14; LT raised to US$90/bbl
● The Credit Suisse Global Oil team is raising its oil price forecasts
by 19-25% (Brent) for 2011-12E and 38% for 2013-14E. LT oil
price is raised to US$90/bbl.
● Oil prices have risen in response to QE2, a demand shock and
the Middle East tensions. Assuming demand slows from 2H10’s
torrid pace, that QE2 ends and there is no major disruption to
Saudi production, we believe the next move could be down. From
there, the price outlook will likely depend on demand.
● We are positive on demand – we forecast an average growth of
1.8mbd p.a. for 2011-15, and there could be an upside risk to our
demand forecasts. We are also positive on supply – global
onshore supply is surprising, but the market may not be convinced
that supply can sustainably match underlying demand growth until
there is clearer visibility on offshore execution.
● With 3.6 mbd of spare capacity, there is still a cushion to meet
rising demand. Oil prices could strengthen in 2013-14 as demand
eats into spare capacity. Our US$110/bbl 2013-14 forecasts allow
for some spike risk but we do not assume a complete stock out. In
the longer term, high prices will likely be the cure for high prices
but this could take a while. Our mid-cycle price is US$90/bbl.
Bottom line – the price of fear. Crude prices have risen in response
to QE2, a demand shock that is now partly in the rearview mirror and
Middle East tensions. This makes forecasting especially tricky. Oil
above US$100/bbl includes a premium reflecting current fears over
the Middle East and future fears over capacity shortfalls. Assuming
demand slows from 2H10’s torrid pace, that QE2 ends and there is no
major disruption to Saudi production, we believe the next move could
be down. Brent oil prices could fall back to US$100/bbl. From there,
the price outlook will likely depend on demand. Oil prices could
strengthen in 2013-14 as demand eats into spare capacity.
Our central premise for global oil demand-supply
(1) We are positive on demand. We forecast an average growth of
1.8 mbd p.a. for 2011-15. The debate over the interplay of
income effects in the non-OECD, energy efficiency and natural
gas substitution will rumble on but the market will likely remain
concerned until the observed oil demand actually slows.
(2) There could be an upside risk to our demand forecasts.
OECD oil demand has been growing faster than expected. Non-
OECD demand could also surprise on the upside given
mismatches between primary energy supply and demand in key
economies such as China.
(3) We are positive on supply. Non-OPEC supply grew by 1.4 mbd
in 2010 although growth has recently slowed to only 800,000 bd
pa over the last three months. Outside of Libya, OPEC capacity,
particularly NGLs, is growing. Global onshore supply is surprising
due to both technology and activity. Oil supply will grow but the
market may not be convinced that supply can sustainably match
underlying demand growth until there is also clearer visibility on
offshore execution.
(4) Combining our supply and demand forecasts, we do not
believe spare capacity will fall to zero in our base case.
However, as spare capacity falls, the market could become more
concerned about potential shortfalls, particularly in the 2013-14
timeframe. We are formally shifting our oil price deck to reflect a
higher chance of a crude spike over the next three years.
Spare capacity buys policymakers a cushion. With 3.6 mbd of
spare capacity (assuming Saudi production meets Libya shortfalls),
there is still a cushion to meet rising demand. Our US$110/bbl 2013-
14 forecasts allow for some spike risk but we do not assume a
complete stock out. Were capacity to actually fall towards zero, we
believe US$140-150/bbl prices would be needed to crowd out demand.
In the longer term, high prices will likely be the cure for high prices but
this could take a while. Our mid-cycle price is US$90/bbl.
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