Tag Archives: United States

OPEC Forecasts $110 Nominal Price Through End Of This Decade:

OPEC’s World Oil Outlook And Pivot To Asia

https://i0.wp.com/www.sweetcrudereports.com/wp-content/uploads/2013/06/OPEC-conference.jpgby Jennifer Warren

Summary

  • OPEC published its recent global oil market outlook, which offers a slightly different and instructional viewpoint.
  • OPEC sees its share of crude oil/liquids production reducing in light of increases in U.S. and Canada production.
  • OPEC also indicates a pivot toward Asia, where it sees the greatest demand for its primary exports in the future.

In perusing through OPEC’s recently released “World Oil Outlook,” several viewpoints are noteworthy. According to OPEC, demand grows mainly from developing countries and U.S. supply slows its run up after 2019. After 2019, OPEC begins to pick up the slack, supplying its products more readily. In OPEC’s view, Asia becomes a center of gravity given global population growth, up nearly 2 billion by 2040, and economic prosperity. The world economy grows by 260% versus that of 2013 on a purchasing power parity basis.

During the period 2013-2040, OPEC says oil demand is expected to increase by just over 21 million barrels per day (mb/d), reaching 111.1 mb/d by 2040. Developing countries alone will account for growth of 28 mb/d and demand in the OECD will fall by over 7 mb/d (p.1). On the supply side, “in the long-term, OPEC will supply the majority of the additional required barrels, with the OPEC liquids supply forecast increasing by over 13 mb/d in the Reference Case from 2020-2040,” they offer (p.1). OPEC shaved off 0.5 million barrels from their last year’s forecast to 2035. Asian oil demand accounts for 71% of the growth of oil demand.

Morgan Stanley pulled out the following items:

The oil cartel released its World Oil Outlook last week, showing OPEC crude production falling to 29.5 million barrels per day in 2015 and 28.5 million barrels per day in 2016. This year’s average of 30 million barrels per day has helped flood the market and push oil prices to multi-year lows.

In the period to 2019, this chart illustrates where the barrels will flow:

Prices

With regard to price, OPEC acknowledges that the marginal cost to supply barrels continues to be a factor in expectations in the medium and long term. This sentiment has been echoed by other E&P CEOs in various communiques this year. OPEC forecasts a nominal price of $110 to the end of this decade:

On this evidence, a similar price assumption is made for the OPEC Reference Basket (ORB) price in the Reference Case compared to that presented in the WOO 2013: a constant nominal price of $110/b is assumed for the rest of the decade, corresponding to a small decline in real values.

Real values are assumed to approach $100/b in 2013 prices by 2035, with a slight further increase to $102/b by 2040. Nominal prices reach $124/b by 2025 and $177/b by 2040. These values are not to be taken as targets, according to OPEC. They acknowledge the challenge of predicting the world economy as well as non-OPEC supply. The Energy Information Administration (EIA) forecast a price for Brent averaging over $101 in 2015 and West Texas Intermediate (WTI) of over $94 as of their October 7th forecast. (This will have likely changed as of November 12th after the steep declines of October are weighed into their equations.) WTI averaged around the $97 range for 2013 and 2014. Importantly, U.S. supply may ratchet down slightly (green broken line) in response to price declines, if they continue.

It’s also the cars, globally

In 2013, OPEC says gasoline and diesel engines comprised 97% of the passenger cars total in 2013, and will hold 92% of the road in 2040. The diesel share for autos rises from 14% in 2013 to 21% in 2040. Basically, the number of cars buzzing on roads doubles from now to 2040. And 68% of the increase in cars comes from developing countries. China comprises the lion’s share of car volume growing by more than 470 million between 2011-2040, followed by India, then OPEC members will attribute 110 million new cars on the road. These increases assume levels similar to advanced economy (OECD) car volumes of the 1990s. In spite of efficiency and fuel economy, oil use per vehicle is expected to decline by 2.2%.

Commercial vehicles gain 300 million by 2040 from about 200 million in 2011. There are now more commercial vehicles in developing countries than developed.

U.S. Supply and OPEC

According to OPEC, U.S. and Canada supply increases through the period to 2019, the medium term. After 2017, they believe U.S. supply tempers from 1.2 million barrels of tight oil increases between 2013 and 2014 to 0.4 million in 2015, and less incremental increases thereafter. This acknowledges shale oil’s contribution to supply, with other supply sources declining, i.e., conventional and offshore.

OPEC Suggests:

The amount of OPEC crude required will fall from just over 30 mb/d in 2013 to 28.2 mb/d in 2017, and will start to rise again in 2018. By 2019, OPEC crude supply, at 28.7 mb/d, is still lower than in 2013.

However, the OPEC requirements are expected to ramp back up after 2019. By 2040, they expect to be supplying the world with 39 mb/d, a 9 million barrel/d increase from 2013. OPEC’s global share of crude oil supply is then 36%, above 2013 levels of about 30%. A select few firms like Pioneer Natural Resources (NYSE:PXD), Occidental Petroleum (NYSE:OXY), Chevron (NYSE:CVX) and even small-cap RSP Permian (NYSE:RSPP) are staying the course on shale oil production in the Permian for the present. After the first of the year, they will evaluate the price environment.

How does this outlook by OPEC inform the future? From the appearances in its forecasts, OPEC has slightly lower production in the medium term (to 2019), a decline of 1.3 million b/d in 2019 from the 2014 production of 30 million b/d. Thus, the main lever for an increase in prices for oil markets is for OPEC to restrict production, or encourage other members to keep to the current quota of 30 million b/d. Better economic indicators also could help. However, Saudi Arabia, the swing producer, has shown interest in maintaining its market share vis-à-vis the price cuts it has offered China, first, and then the U.S. more recently.

The global state of crude oil and liquids and prices has fundamentally changed with the addition of tight oil or shale oil, particularly from the U.S. While demand particulars have dominated the price regime recently, the upcoming decisions by OPEC at the late November meeting will have an influence on price expectations. In an environment of softer perceived demand now because of global economics and in the future because of non-OPEC supply, it would seem rational for OPEC to indicate some type of discipline among members’ production.

Source: OPEC “2014 World Oil Outlook,” mainly from the executive summary.

High Stakes in Dracula’s Transylvania

House hunters are turning to Romania’s central region of Transylvania, popularized by the tale of Count Dracula. Restrictions were lifted this year on local purchases of local real estate by European Union nationals. Bran Castle, above, in Bran, Brasov county, is marketed as the home of Count Dracula, but in reality it was a residence of Romanian Queen Marie in the early 20th century.Romania draws foreign buyers looking for historic mansions and modern villas in resort areas

by Martin M. Sobczyk

Count Dracula, the central character of Irish author Bram Stoker’s classic vampire novel, eagerly left for England in search of new blood, in a story that popularized the Romanian region of Transylvania. Today, house hunters are invited to make the reverse journey now that Romania is a member of the European Union and that restrictions were lifted this year on purchases of local real estate by the bloc’s nationals.

Britain’s Prince Charles, for one, unwinds every year in Zalanpatak. The mud road leading to the remote village stretches for miles, with the clanging of cow bells accompanying tourists making the trek.

Elsewhere in the world, the heir to the British throne occupies great castles and sprawling mansions. In rural Romania, he resides in a small old cottage. His involvement, since 2006, in the restoration of a few local farmhouses has given the hamlet global popularity and added a sense of excitement about Transylvania living.

A living room in Bran Castle, a Transylvania property marketed as Count Dracula’s castle. The home is for sale, initially listed for $78 million.A living room in Bran Castle, a Transylvania property marketed as Count Dracula’s castle. The home is for sale, initially listed for $78 million.

Transylvania, with a population of more than seven million in the central part of Romania, has a number of high-end homes on the market. And, yes, one is a castle. Bran Castle in Brasov county is marketed as the home of Count Dracula. In reality it was a residence of Romanian Queen Marie in the early 20th century. In 2007, the home was available for $78 million. The sellers are no longer listing a price, said Mark A. Meyer, of Herzfeld and Rubin, the New York attorneys representing the queen’s descendants, but will entertain offers.

Foreign buyers had been focused on Bucharest, where there was speculative buying of apartments after the country joined the EU in 2007. But Transylvania has been luring house hunters away from the capital city.

A guesthouse on the property in Zalanpatak, Transylvania, that is owned by Britain’s Prince Charles. His presence has boosted interest in Romanian real estate.A guesthouse on the property in Zalanpatak, Transylvania, that is owned by Britain’s Prince Charles. His presence has boosted interest in Romanian real estate.

Transylvania means “the land beyond the forest” and the region is famous for its scenic mountain routes. Brasov, an elegant mountain resort and the closest Transylvanian city to the capital, has many big villas built in the 19th century by wealthy merchants. A 10-room townhouse from that period in the historic city center is listed for $2.7 million. For $500,000, a 2,200-square-foot apartment offers rooftop views of the city and the surrounding mountains.

A seven-bedroom mansion in the nearby village of Halchiu, close to popular skiing resorts, is on the market for $2.4 million. The modern villa features two huge living rooms, a swimming pool, a tennis court and spectacular views of the Carpathian Mountains.

The village, founded by Saxons in the 12th century, has rows of historic houses across the street. Four such buildings were demolished to make way for the mansion, completed in 2010.

A $2.4 million mansion is for sale in Halchiu village.A $2.4 million mansion is for sale in Halchiu village.

“Rather than invest a million or more to buy an existing house, the wealthy prefer to build on their own because construction materials and work is cheaper,” said Raluca Plavita, senior consultant at real-estate firm DTZ Echinox in Bucharest.

Non-EU nationals can’t purchase land outright—although they may use locally registered companies to circumvent the restriction—but they can buy buildings freely, said Razvan Popa, real-estate partner at law firm Kinstellar. High-end properties are out of reach for many Romanians, who make an average of $500 in monthly take-home pay.

The country saw a rapid inflation of real-estate prices before 2008, on prospects of Romania’s entry to the EU and the North Atlantic Treaty Organization, as well as aggressive lending by banks. Values then fell by half during the global financial crisis.

The economy is stronger now, with the International Monetary Fund estimating 2.4% growth this year. But the country is still among Europe’s poorest. Its isolation during the dictatorship of Nicolae Ceausescu gave it a bad image.

The interior of the seven-bedroom Halchiu mansion, which was built on the site of four traditional Saxon homes.The interior of the seven-bedroom Halchiu mansion, which was built on the site of four traditional Saxon homes.

“Interest in Romania isn’t comparable with Prague or Budapest where some may be looking to buy a small apartment with a view of Charles Bridge or the Danube,” said Mr. Popa, the real-estate lawyer.

The international publicity around Prince Charles’s properties offers a counterbalance to some of the negative press Romania has received in Western Europe, which is worried about well-educated Romanians moving to other countries to provide inexpensive labor.

The Zalanpatak property is looked after by Tibor Kalnoky, a descendant of a Hungarian aristocratic family. The 47-year-old studied in Germany to be a veterinarian and, after reclaiming family assets in Romania, has managed the prince’s property and has hosted him during his visits.

These occasional visits are enough to attract scores of tourists throughout the year to the formerly obscure village in a Transylvanian valley. The fact that few street signs lead there, that the property offers no Internet or TV and that cellphone signals are absent for miles, seems only to add to the mystery of the place.