Oil Market Update January 2020 - BP
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Oil Market Update January 2020
Disclaimer
This presentation has been provided to you for informational purposes only. This presentation is not advice on or
a recommendation of any of the matters it describes. This presentation is not an offer or solicitation by or on
behalf of BP p.l.c. or any of its subsidiaries (collectively "BP") to enter into any contractual arrangement. BP makes
no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or
completeness of the information, assumptions or analysis contained in this presentation or in any supplemental
materials. BP accepts no liability in connection with any of such information. BP deals and trades in energy related
products and may have positions consistent with or different from those discussed herein.
Any forward-looking statements are based on plans, estimates and projections and you should not place undue
reliance on them. These statements are not guarantees of future performance and involve certain risks and
uncertainties, which are difficult to predict.
The information contained in this document shall not be modified, reproduced, distributed or otherwise
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including copyright, confidentiality and ownership rights, are reserved
2Market Summary
• Brent is currently trading around $59/bbl, falling following the unfortunate outbreak
of the Novel Coronavirus (2019-nCoV) in China.
• Brent hit highs of $71/bbl in early January after an Iranian missile strike on Iraqi military
bases hosting US troops. This followed a US airstrike in Iraq that killed a top Iranian military
commander, Qassem Soleimani. Prices fell as the US and Iran attempted to de-escalate
tension in the region.
• Phase 1 of the US-China trade deal was signed on 15th January. Uncertainty remains around
the timeline of Phase 2, with talks yet to begin.
• The Vienna Alliance of OPEC and non-OPEC producers met in December and agreed to
deepen existing output cuts by 500kbd to 1.7mbd, plus an additional voluntary cut of 400kbd
by Saudi Arabia, to the end of March 2020. It was recently announced that the next meeting
may be moved forward from 5th March 2020 if oil demand in China is significantly impacted
by the spread of the Novel Coronavirus.
• IMO 2020 has led to a volatile quarter for fuel oil pricing, as HSFO hit lows of -$35/bbl
against Brent and at the end of January is trading higher at -$17/bbl due to reduced supply
and increased coking demand. The HSFO/VLSFO price spread averaged $36/bbl over 4Q19,
with VLSFO cracks trading very strongly at +$12/bbl. MGO uptake is slower than expected as
shipowners have shown a preference for VLSFO so far
• Refining margins (BP RMM) fell from a high of $19/bbl at the start of October to a low of
$7/bbl during December. The margin has since recovered to $9/bbl, but is still significantly
below the 2019 average of $13/bbl.
Source: BP Internal, S&P Global Platts ®, ICE, IEA 3Crude prices fall following the Novel Coronavirus outbreak
• Crude prices have recently fallen following the unfortunate outbreak of the Novel Coronavirus in China
• After relatively high crude prices in 2Q19, prices faced downward pressure in Q3 and Q4 following evidence of
slower economic expansion and below expectation oil demand growth.
• The ongoing geopolitical tensions in the Middle East and US airstrikes in Iraq increased the risk premium on oil
supply in mid-January.
Global Crude Prices
$/bbl
80
70
60
50
40
30
20
2015 2016 2017 2018 2019 2020
WTI Brent WTI Futures Brent Futures Dubai
Futures as of 28/01/2020 Source: NYMEX, ICE 4Brent-WTI differential traded within a narrow range in Q4
2019
• The Brent-WTI differential remained narrow at around $6/bbl in 4Q19.
• WTI has strengthened from significant stock draws at Cushing as increased pipeline capacity has reduced the
bottleneck of crude supply to US Gulf Coast refineries.
Brent-WTI spread
$/bbl
16
14
12
10
8
6
4
2
0
-2
2014 2015 2016 2017 2018 2019 2020
Brent-WTI Brent-WTI Futures
Futures as of 15/01/2020 Source: NYMEX, ICE, S&P Global Platts ® 5Net speculative length increased in Q4 2019
• NSL rose to the highest levels since May-19 at 400k contracts in Dec-19, a sharp rise of 200k since Oct-19.
• Contracts have risen further in early 2020 to 425k following the US airstrike killing a top Iranian military
commander and the later retaliation strikes on a US base in Iraq.
• Contracts volume is now similar to the average levels observed in 2017 and 2018.
• The impact on NSL of the Novel Coronavirus outbreak is yet to be seen.
Net Speculative Length (2012-2019) Net Speculative Length (2017-2019)
Thousands Thousands
of contracts of contracts
$/bbl $/bbl
700 145 700 145
600 600
125 125
500 500
105 105
400 400
85 85
300 300
65 65
200 200
45 45
100 100
0 25 0 25
2012 2013 2014 2015 2016 2017 2018 2019 2020 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20
Brent Net Spec Length (LHS) Brent Price (RHS) Brent Net Spec Length (LHS) Brent Price (RHS)
Source: ICE 6OPEC+ cut extra 500kbd of oil supply for 1Q 2020, taking
the announced cut to 1.7mbd
• The new 1.7mbd OPEC total cut, plus an additional voluntary 400kbd cut from Saudi Arabia, took effect on
1st Jan-20, and requires significant cuts from most member states. Reports suggest an extension past Mar-20 and
deeper supply cuts are possible if oil price is significantly impacted by the spread of the Novel Coronavirus.
• Compliance in Dec-19 was 181%, an increase from Nov-19 at 154%, driven primarily by Saudi Arabia’s overcompliance
(296% and 228% in respectively).
• OPEC production was 2.4mbd lower in 2019 compared to 2018.
OPEC Crude Supply Saudi Crude Supply Russia Crude Supply
mbd mbd mbd
34 12
Thousands
10.5
11
32 10.2
10
9.9
9
30
9.6
8
28 7 9.3
Oct
Jan
Dec
Feb
Mar
Sep
Oct
May
Dec
Nov
Apr
Jul
Aug
Oct
Jan
Feb
Mar
May
Sep
Apr
Nov
Jun
Aug
Dec
Jul
Jan
Feb
Mar
Sep
Jun
May
Nov
Apr
Jul
Aug
Jun
'09-'13 2014 2015 2016 2017 2018 2019 Announced cut
NB: assumes 100% of production cut
applied to crude oil
Source: IEA, S&P Global Platts ® 7Iranian and Venezuelan output remains low
• Iranian crude supply remained low at 2mbd in Dec-19, as US sanctions suppressed the country’s oil exports.
• Iranian production sunk to 2mbd in 2019, the lowest level since 1988, while Venezuela also fell to 870kbd.
• The IEA states that Iranian crude exports stood at 300kbd, around 2.5mbd lower than before Washington withdrew
from the JCPOA.
• Venezuelan output reached 850kbd in Dec-19, due to ongoing operational difficulties and the pressure of
international sanctions.
Iran Crude Supply Venezuela Crude Supply
mbd mbd
4.0 3.5
3.0
3.5
2.5
3.0 2.0
1.5
2.5
1.0
2.0 0.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Min '09-'13 range 2014 2015 2016 2017 2018 2019
Source: IEA 8However, US production growth continues to offset
losses elsewhere
• US crude supply continues to reach new highs, hitting over 12.6mbd in Dec-19. The latest weekly DOE statistics
report US crude supply at 13mbd.
• In Dec-19, the US produced 1mbd more crude than Russia and 3mbd more than Saudi Arabia, the two next largest
oil producers.
• Cushing stocks fell in 4Q19 and remain significantly lower than 2016/2017 levels.
US Crude Supply Cushing Stocks
mb
mbd
80
13
70
60
11
50
9 40
30
7 20
10
5 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
'09-'13 range 2014 2015 2016 2014 2015 2016 2017
2017 2018 2019 2018 2019 2020
Source: IEA, EIA 9US rig count decreases whilst production continues to grow
• Significant productivity gains have allowed for an increase in US production despite the rig count decreasing.
• Despite the rig count falling by 23% between Jan-19 and Nov-19, production has increased 8% and average
production per rig hit 819 bpd in Nov-19. Baker Hughes reports a slight increase in rig count during Jan-20.
• In the same period, total Drilled but Uncompleted (DUC) wells decreased by 9% in the major shale regions.
Rig count vs. crude production Average production per rig
mbd No. of rigs bpd
1,000
14 1,800
800
1,600
12
600
1,400
10 400
1,200
200
8 1,000
0
6 800 2011 2013 2015 2017 2019
600 Total DUCs
4 No. of wells
400 9000
2
200
8000
0 0
2008 2010 2012 2014 2016 2018 2020 7000
Anadarko Region Appalachia Region
Bakken Region Eagle Ford Region
Haynesville Region Niobrara Region 6000
Permian Region Total US production
Total Rig Count
5000
DPR Regions (Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, 2016 2017 2018 2019 2020
Niobrara & Permian) do not represent all hydrocarbon producing areas
Source: EIA 10Oil demand growth in 2019 was below 2018 levels
• Global total oil demand rose 955kbd y-o-y to 101mbd in Oct-19 (the latest month for which complete figures are
available), confirming the acceleration in annual growth rate seen in 2H19.
• Despite falling demand in OECD, many non-OECD countries demand have grown strongly, including
China (+720kbd in October), Saudi Arabia (+290kbd in October) and Russia (+215kbd in October) according to IEA data.
Y/Y total products demand growth Y/Y OECD products demand growth
mbd kbd
1.2 800
1.0 600
0.8 400
0.6 200
0.4 0
0.2 -200
0.0 -400
-0.2 -600
2018 2019 2018 2019
LPG and Ethane Naphtha Motor Gasoline
OECD Non-OECD Total Jet and Kerosene Diesel Gasoil
Residual Fuel Other Products Total Products
Source: IEA 11OECD product demand presents a mixed story
• OECD oil consumption fell in Oct-20 driven by mediocre economic growth, warm weather and weak
petrochemical feedstock demand. Ethane/LPG, naphtha and jet demand recovered somewhat in Nov/Dec-19.
• Gasoline and diesel/gasoil demand remained approximately unchanged from 2018 levels in 2019, while residuals
demand fell and ethane/LPG demand grew moderately year-on-year.
OECD Product Demand
Ethane and LPG Naphtha
mbd mbd
6.6 3.8
6.0
3.5
5.4
3.2
4.8
4.2 2.9
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Gasoline
mbd Jet/Kerosene
mbd
15.4 5.0
14.6 4.6
4.2
13.8
3.8
13.0 3.4
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Diesel/Gasoil Residuals
mbd mbd
14.2 2.8
13.4 2.4
12.6 2.0
11.8 1.6
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
'09-'13 range 2014 2015 2016 2017 2018 2019
Source: IEA 12OECD refinery runs were impacted by higher than average
TARs in 2019
• US crude runs increased in 4Q19 in line with the 2017/2018 trend, yet have remained down year on year.
• Total OECD crude runs have also fallen year-on-year, down by over 800kbd in Oct-19.
US crude runs OECD crude runs
mbd mbd
19
Thousands
18 40
17
38
16
15
36
14
13 34
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
'09-'13 range 2014 2015 2016 2017 2018 2019
Source: EIA, IEA 13Total OECD crude stock levels remain similar to 2018 levels
• OECD crude stocks built by over 45mb from Jan-May 2019, returning to the level they were 12 months earlier.
• Stocks have since decreased over 3Q19 and built in 4Q19, in line with seasonal norms.
• OECD crude stocks trends are not uniform globally; stocks remain at higher than historical norms in Europe and
lower than historical norms in Asia.
Total OECD Crude Stocks Regional OECD Total Crude Stocks
mb mb mb
2,700 700 1400
1300
650
2,500
1200
600
1100
2,300
550
1000
2,100 500 900
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 2013 2014 2015 2016 2017 2018 2019 2020
'09-'13 range 2014 2015 OECD Asia Oceania (LHS) OECD Europe (LHS)
2016 2017 2018
2019 OECD Americas (RHS)
Source: IEA 14OECD product stocks fall in 4Q19 following seasonal
trends
• OECD product stocks fell by 70mb between Sep-19 and Nov-19, reversing most the build that occurred earlier in
the year.
• In Oct/Nov-19, middle distillates and other products contributed to most the stock fall, with a small increase in
gasoline stocks, reversing the changes observed in 3Q19.
OECD Total Product Stocks OECD Total Product Stock Change
Monthly
mb change (mb)
2,000
80
60
1,900
40
20
1,800
0
1,700
-20
-40
1,600
-60
-80
1,500
Nov-18 Feb-19 May-19 Aug-19 Nov-19
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Motor gasoline Middle distillates
'09-'13 range 2014 2015
2016 2017 2018 Residual fuel oil Other products
2019 Source: IEA 15European products market volatile in run up to IMO 2020
• The price of HSFO fell to a low of -$35/bbl at the end of Nov-19, as demand for HSFO fell as a result of the
IMO 2020 regulations. HSFO has since recovered to -$17/bbl following lower refinery supply and new demand
from coking refineries.
• VLSFO demand and cracks have increased significantly since Sep-19, with cracks averaging +$9/bbl in 4Q19
• Diesel and jet cracks fell during 4Q19 following low industrial demand and the weak macroeconomic
environment, but recovered during Dec-19 to +$15/bbl and +$16/bbl respectively.
Product Cracks (NWE FOB)
$/bbl
20
10
0
-10
-20
-30
-40
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Naphtha Gasoline Jet Diesel HSFO VLSFO
Source: S&P Global Platts ® 16IMO 2020 has had a significant impact on the price of
different shipping fuels
• VLSFO pricing has rallied relative to MGO since Dec-19, and has averaged only a $50/ton discount since 1st Jan
2020.
• The price spread between VLSFO and HSFO widened from $50/ton in 1Q19 to $250/ton in 4Q19.
Product prices (NWE FOB)
$/MT
800
700
600
500
400
300
200
100
0
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20
VLSFO (Europe) MGO (Europe) HSFO (Europe)
Source: S&P Global Platts ® 17Refinery margins fell in Q4 2019 on lower gasoline and
diesel cracks
• Global Refinery Marker Margins (RMM) steadily fell from a high of $20 in Oct-19 to $7 during Dec-19
• During 4Q19, gasoline and diesel cracks fell $7/bbl and $5/bbl respectively following the weak macroeconomic
environment and low industrial demand.
BP Global Refining Marker Margin (RMM)
$/bbl
25
20
15
10
5
0
Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Oct 19 Jan 20
Quarterly Average
The BP Global Refining Marker Margin (RMM) is a simplified indicator that reflects the margins achieved on gasoline and diesel only. The RMM may
not be representative of the margin achieved by BP in any period because of BP’s particular refinery configurations and crude and product slates.
Source: BP Analysis 18Global refinery margins were unchanged year on year
• Global Refinery Marker Margin (RMM) averaged $13/bbl in both 2018 and 2019.
• Gasoline cracks fell slightly and diesel cracks increased marginally in Europe in 2019 compared to the previous
year.
• RMM has been comparatively low in 2020 to date due to suppressed gasoline values.
Global annual average Refinery Margin Annual average NWE Gasoline and
Marker (RMM) Diesel cracks
$/bbl $/bbl
25 25
20
20 19 20
17 17
15 16
15 15 15
15 14 14 15 14
13 13
12 11 12 12
11
9 10
10 10 9
8
7
5 5
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019
Gasoline Diesel
Source: BP Analysis, ICE, S&P Global Platts ® 19Upcoming events
• OPEC are due to meet in Vienna on 5th March 2020, and will be joined by other members
of OPEC+ on 6th March 2020.
o The meeting will provide an opportunity to assess the extent to which their
production cut has succeeded in rebalancing the market, and to discuss production
plans for 2020.
• United States presidential election is scheduled for November 2020.
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