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India Equity Research Reports, IPO and Stock News
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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily16042012.pdf
Energy: Iran versus the US: A new dimension
` Falling US oil demand and rising US oil production and inventories
` Declining Iran supply and a difficult internal situation
` US production to drive non-OPEC oil supply in CY2012E, OPEC NGLs to
help supply
` Indian Government inaction becoming a bigger issue than global crude
prices
Iran versus the US: A new dimension. We highlight the less visible episode in the Iran
versus the US drama—falling US oil demand and rising US crude production versus
declining Iran supply of crude, forced by US-EU sanctions. If the Iran-US nuclear issue
heads for a saner resolution, attention will turn to oil fundamentals. Oil supply-demand
balance looks set to ease at least over the next few months and could ease further if
Sudan and South Sudan were to resolve their differences.
Falling US oil demand and rising US oil production and inventories
We note that US oil demand continues to fall and has fallen to 18.2 mn b/d in March 2012 from
20.1 mn b/d in CY2008 (see Exhibit 1). Over the same period, US oil production rose to 8.6 mn
b/d (March 2012 data) from 7.5 mn b/d in CY2008. The increase in US oil production has been
particularly strong over the past one year (see Exhibit 2) and is likely to continue over the next
several years, driven by higher tight oil production. US crude inventories have risen sharply over the
past few weeks and are at the top-end of the CY2000-11 range (see Exhibit 3).
Declining Iran supply and a difficult internal situation
Iran’s crude oil production has fallen moderately over the past few months (see Exhibit 4) due to
sanctions imposed by the US and the EU and lower off-take by China, a key buyer of Iran’s crude.
The nuclear issue is still certainly alive, though Iran appears to be have toned down its rhetoric due
to (1) the debilitating impact of sanctions on its economy (could worsen as further sanctions take
hold) and (2) heightened tensions between the Government and religious authorities.
US production to drive non-OPEC oil supply in CY2012E, OPEC NGLs to help supply
The IEA projects non-OPEC supply to grow 0.71 mn b/d in CY2012, driven by higher US oil
production (+0.51 mn b/d). OPEC NLG supply will increase by 0.55 mn b/d, which should ease
crude supply further. Several OPEC countries have stepped up production over the past few
months (see Exhibit 5) and can potentially replace Iran’s declining exports, especially if Iraq and
Libya can increase production. We note that non-OPEC supply includes a sharp decline in
production from Africa (-0.18 mn b/d), which presumably reflects loss of production from South
Sudan for part of CY2012. Exhibit 6 gives the IEA’s overall supply-demand balance for CY2012E
and beyond with some modifications made by us for demand estimates.
Indian Government inaction becoming a bigger issue than global crude prices
We note that the Indian Government’s continued inability to raise domestic retail prices of
regulated fuels is emerging as a bigger threat to our investment thesis for upstream companies.
We currently model FY2013E average crude price at US$110/bbl and moderate domestic price
increases. Without domestic price increases, our under-recovery assumption could jump to `1.4 tn
from `1.1 tn (see Exhibit 7, which gives our assumption of under-recoveries in FY2013E at various
levels of crude prices and two scenarios, one of higher and one of stable domestic retail prices).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily16042012.pdf
Energy: Iran versus the US: A new dimension
` Falling US oil demand and rising US oil production and inventories
` Declining Iran supply and a difficult internal situation
` US production to drive non-OPEC oil supply in CY2012E, OPEC NGLs to
help supply
` Indian Government inaction becoming a bigger issue than global crude
prices
Iran versus the US: A new dimension. We highlight the less visible episode in the Iran
versus the US drama—falling US oil demand and rising US crude production versus
declining Iran supply of crude, forced by US-EU sanctions. If the Iran-US nuclear issue
heads for a saner resolution, attention will turn to oil fundamentals. Oil supply-demand
balance looks set to ease at least over the next few months and could ease further if
Sudan and South Sudan were to resolve their differences.
Falling US oil demand and rising US oil production and inventories
We note that US oil demand continues to fall and has fallen to 18.2 mn b/d in March 2012 from
20.1 mn b/d in CY2008 (see Exhibit 1). Over the same period, US oil production rose to 8.6 mn
b/d (March 2012 data) from 7.5 mn b/d in CY2008. The increase in US oil production has been
particularly strong over the past one year (see Exhibit 2) and is likely to continue over the next
several years, driven by higher tight oil production. US crude inventories have risen sharply over the
past few weeks and are at the top-end of the CY2000-11 range (see Exhibit 3).
Declining Iran supply and a difficult internal situation
Iran’s crude oil production has fallen moderately over the past few months (see Exhibit 4) due to
sanctions imposed by the US and the EU and lower off-take by China, a key buyer of Iran’s crude.
The nuclear issue is still certainly alive, though Iran appears to be have toned down its rhetoric due
to (1) the debilitating impact of sanctions on its economy (could worsen as further sanctions take
hold) and (2) heightened tensions between the Government and religious authorities.
US production to drive non-OPEC oil supply in CY2012E, OPEC NGLs to help supply
The IEA projects non-OPEC supply to grow 0.71 mn b/d in CY2012, driven by higher US oil
production (+0.51 mn b/d). OPEC NLG supply will increase by 0.55 mn b/d, which should ease
crude supply further. Several OPEC countries have stepped up production over the past few
months (see Exhibit 5) and can potentially replace Iran’s declining exports, especially if Iraq and
Libya can increase production. We note that non-OPEC supply includes a sharp decline in
production from Africa (-0.18 mn b/d), which presumably reflects loss of production from South
Sudan for part of CY2012. Exhibit 6 gives the IEA’s overall supply-demand balance for CY2012E
and beyond with some modifications made by us for demand estimates.
Indian Government inaction becoming a bigger issue than global crude prices
We note that the Indian Government’s continued inability to raise domestic retail prices of
regulated fuels is emerging as a bigger threat to our investment thesis for upstream companies.
We currently model FY2013E average crude price at US$110/bbl and moderate domestic price
increases. Without domestic price increases, our under-recovery assumption could jump to `1.4 tn
from `1.1 tn (see Exhibit 7, which gives our assumption of under-recoveries in FY2013E at various
levels of crude prices and two scenarios, one of higher and one of stable domestic retail prices).
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