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Energy
India
Oil on a slippery slope. Our analysis of the demand-supply balance of crude oil in the
near and medium term raises concerns on the sustainability of oil prices at higher levels.
We do not rule out softer prices in the near-to-medium term led by favorable supplydemand
balance given (1) likely lower growth in oil demand due to global economic
slowdown, (2) higher crude supply from non-OPEC countries, (3) expansion of OPEC
production capacity and (4) increase in OPEC NGLs production.
Difficult to justify crude prices at higher levels given demand-supply balance
We see risks to sustainability of crude oil prices at higher levels given comfortable demand-supply
balance in CY2012-13E. We highlight that the IEA estimates global oil demand at 1.3 mb/d for
CY2012E based on a rather strong global GDP growth assumption of 3.9%. On the other hand,
we see ample supply led by (1) 1 mn b/d increase in non-OPEC supply and (2) 0.6 mn b/d increase
in OPEC NGLs production. This should ease the OPEC spare capacity to 5.3 mn b/d (+1.2 mn b/d
yoy) in CY2012E. Exhibit 1 gives our estimates of global oil demand-supply balance.
IEA estimate of global oil demand seems to be aggressive
We find the IEA’s 1.3 mn b/d per annum increase in global oil demand for CY2012-13E as fairly
aggressive in light of (1) ongoing turmoil in the Eurozone and (2) economic slowdown in key
consumers such as US, China and India. The IEA’s underlying assumption of global GDP growth of
3.9% for CY2012E and 4.4% for CY2013E seems quite optimistic. IEA’s estimate of global oil
demand may see a downward revision given a modest 0.3% yoy growth in oil demand for the last
three quarters of CY2011.
Sufficient incremental supply to cater to growing demand
We expect meaningful addition to crude oil supply in CY2012-13E, which should ease OPEC spare
capacity and keep crude oil prices in check. We estimate OPEC spare capacity at 5.3 mb b/d in
CY2012E versus 4.1 mn b/d in CY2011 even on fairly aggressive assumptions of global oil demand.
Non-OPEC supply will likely increase by 1 mn b/d in CY2012E led by higher production from
Canada, US, Australia, Brazil, China and Russia. In addition, OPEC NGLs production is expected to
increase to 6.4 mn b/d (+0.6 mn b/d yoy) in CY2012E. Key downside risk to global oil supply stems
from further potential international sanctions against Iran.
Medium-term outlook—enough supply to ease OPEC spare capacity and keep prices in check
We do not see pressure on the oil demand-supply in the medium term (CY2012-16E) as well led
by (1) 2.4 mn b/d increase in non-OPEC supply in CY2012-16E reflecting higher oil production
from US, Canada and Brazil, (2) 2.6 mn b/d expansion in OPEC production capacity boosted by
rising crude production capacity from Iraq, Libya and UAE and (3) 1 mn b/d rise in OPEC NGLs
production. This would result in a comfortable OPEC spare capacity of 6-7 mn b/d by CY2016E
based on incremental oil demand growth of 4.7 mn b/d. OPEC spare capacity could ease further to
~9 mn b/d by CY2016E in the IEA’s alternative scenario of lower world GDP growth.
India may not get much relief unless Rupee stabilizes or appreciates
We estimate gross under-recoveries at `1.3 tn for FY2012E and `1.2 tn for FY2013E based on
crude oil price assumption of US$110/bbl and US$100/bbl. However, we highlight the high
sensitivity of gross under-recoveries to (1) crude oil prices and (2) exchange rate assumption. We
discuss the same in detail later in the note.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Energy
India
Oil on a slippery slope. Our analysis of the demand-supply balance of crude oil in the
near and medium term raises concerns on the sustainability of oil prices at higher levels.
We do not rule out softer prices in the near-to-medium term led by favorable supplydemand
balance given (1) likely lower growth in oil demand due to global economic
slowdown, (2) higher crude supply from non-OPEC countries, (3) expansion of OPEC
production capacity and (4) increase in OPEC NGLs production.
Difficult to justify crude prices at higher levels given demand-supply balance
We see risks to sustainability of crude oil prices at higher levels given comfortable demand-supply
balance in CY2012-13E. We highlight that the IEA estimates global oil demand at 1.3 mb/d for
CY2012E based on a rather strong global GDP growth assumption of 3.9%. On the other hand,
we see ample supply led by (1) 1 mn b/d increase in non-OPEC supply and (2) 0.6 mn b/d increase
in OPEC NGLs production. This should ease the OPEC spare capacity to 5.3 mn b/d (+1.2 mn b/d
yoy) in CY2012E. Exhibit 1 gives our estimates of global oil demand-supply balance.
IEA estimate of global oil demand seems to be aggressive
We find the IEA’s 1.3 mn b/d per annum increase in global oil demand for CY2012-13E as fairly
aggressive in light of (1) ongoing turmoil in the Eurozone and (2) economic slowdown in key
consumers such as US, China and India. The IEA’s underlying assumption of global GDP growth of
3.9% for CY2012E and 4.4% for CY2013E seems quite optimistic. IEA’s estimate of global oil
demand may see a downward revision given a modest 0.3% yoy growth in oil demand for the last
three quarters of CY2011.
Sufficient incremental supply to cater to growing demand
We expect meaningful addition to crude oil supply in CY2012-13E, which should ease OPEC spare
capacity and keep crude oil prices in check. We estimate OPEC spare capacity at 5.3 mb b/d in
CY2012E versus 4.1 mn b/d in CY2011 even on fairly aggressive assumptions of global oil demand.
Non-OPEC supply will likely increase by 1 mn b/d in CY2012E led by higher production from
Canada, US, Australia, Brazil, China and Russia. In addition, OPEC NGLs production is expected to
increase to 6.4 mn b/d (+0.6 mn b/d yoy) in CY2012E. Key downside risk to global oil supply stems
from further potential international sanctions against Iran.
Medium-term outlook—enough supply to ease OPEC spare capacity and keep prices in check
We do not see pressure on the oil demand-supply in the medium term (CY2012-16E) as well led
by (1) 2.4 mn b/d increase in non-OPEC supply in CY2012-16E reflecting higher oil production
from US, Canada and Brazil, (2) 2.6 mn b/d expansion in OPEC production capacity boosted by
rising crude production capacity from Iraq, Libya and UAE and (3) 1 mn b/d rise in OPEC NGLs
production. This would result in a comfortable OPEC spare capacity of 6-7 mn b/d by CY2016E
based on incremental oil demand growth of 4.7 mn b/d. OPEC spare capacity could ease further to
~9 mn b/d by CY2016E in the IEA’s alternative scenario of lower world GDP growth.
India may not get much relief unless Rupee stabilizes or appreciates
We estimate gross under-recoveries at `1.3 tn for FY2012E and `1.2 tn for FY2013E based on
crude oil price assumption of US$110/bbl and US$100/bbl. However, we highlight the high
sensitivity of gross under-recoveries to (1) crude oil prices and (2) exchange rate assumption. We
discuss the same in detail later in the note.
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