DATA, FORECASTS AND ANALYSIS ON THE GLOBAL OIL

MARKET

BY
ABINASH BARIK
19BSP0112

FACULTY GUIDE: Prof. Soni karekar

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 INDEX

 INTRODUCTION………………………………………………………………………03
 ADVANTAGES OF OIL MARKET……………………………………………….04
 DISADVANTAGES OF OIL MARKET…………………………………………..05
 OIL COMPARISON IN WORLD FIRST QUARTER OF 2020- COMPARED WITH FIRST
QUARTER…………………………………………………………………………………06
 OIL MARKETS FACE MAJOR CHALLENGES………………………………..08
 OIL MARKETS UPENDED BY DEMAND AND SUPPLY
CONCERNS……………………………………………………………………………..09
 OIL PRICES TAKING ACUTE DOWN
PATH………………………………………………………………………………………12
 INDIA’S FUEL DEMAND SHOWS SIGHNS OF RECOVERY…………..14
 ABOUT OPEC…………………………………………………………………………..16
 OPEC PRICE COMPARISON………………………………………………………19

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 INTRODUCTION OF OIL INDUSTRY IN WORLD
 Oil industry includes the global processes
of exploration, extraction, refining, transporting (often by oil
tankers and pipelines), and marketing of petroleum products.
 The largest volume products of the industry are fuel
oil and gasoline (petrol). Petroleum (oil) is also the raw
material for many chemical products,
including pharmaceuticals, solvents, fertilizers, pesticides,
synthetic fragrances, and plastics.
 The extreme monetary value of oil and its products has led
to it being known as "black gold". The industry is usually
divided into three major
components: upstream, midstream, and downstream.
Upstream deals with Drilling and Production mainly.
 Petroleum is vital to many industries, and is necessary for
the maintenance of industrial civilization in its current
configuration, making it a critical concern for many
nations. 
 Petroleum is vital to many industries, and is necessary for
the maintenance of industrial civilization in its current
configuration, making it a critical concern for many
nations. 
 Governments such as the United States government provide a
heavy public subsidy to petroleum companies, with major tax
breaks at virtually every stage of oil exploration and
extraction, including the costs of oil field leases and drilling
equipment.
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 ADVANTAGES OF OIL MARKET

 High Energy Density – Oil has one of the highest energy densities
which means that a small amount of oil can produce a large
amount of energy. This makes it very useful as its high energy
density has made it the preferred choice for use as fuel in
automobiles.
 Easy Availability, Infrastructure for Transport and Use  – Oil is
widely distributed in almost all parts of the world. Also there
exists a massive infrastructure to transport oil to other places
through ships, pipelines and tankers. This means that oil is
available throughout the world.
 Crucial for wide variety of Industries – Besides Transport, Oil is a
critical component in a wide variety of other industries. It is
difficult to think of a commodity which has such a huge role to
play in a wide variety of human products from Vaseline, cloth,
medicines etc.
  Easy to Produce and Refine – Oil is not very difficult to produce
though most of the low-cost locations have already been
depleted. Now Oil is being mined off the coasts in seas and also
tar sands. Oil Refinery Technology is also quite old and mature
which implies that refining of oil to get valuable products like
diesel, petrol is also quite easy.
  Constant Power Source and Reliability – Unlike solar and wind
energy, oil can produce power 24/7 and is highly reliable. Oil
engines are a mature technology and highly reliable to work
with.

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 DISADVANTAGES OF OIL MARKET
 Greenhouse Gas Emissions (GHG) – One of the biggest
Disadvantages of Oil is that it releases Carbon Dioxide which has
been sequestered for millions of years in the dead bodies of plant
and animals. This transfers the Carbon from the Earth to the
Environment leading to the Global Warming Effect. Global
Treaties have failed in putting a Cost on this, though individual
countries are tying to account for this through Carbon Taxes and
Cap and Trade.
  Pollution of Water and Earth – Oil Spills have caused massive
pollution of water bodies as massive oil supertankers lead oil.
This leads to the death of thousands of animals and fishes every
year beside devastating the local ecology. The BP Oil Spill caused
billions of dollars in losses and even to this day small Oil Spills
keep happening.
 Emission of Harmful Substances like Sulfur Dioxide, Carbon
Monoxide, Acid Rain – Oil Plants emit harmful substances such as
Sulfur Dioxide which cause health hazards among the
surrounding population and Acid Rain. While modern
equipment has reduced the emission of these harmful substances,
it is still very harmful to humans.
  Leads to production of very harmful and toxic materials during
refining, Plastic is one of the most harmful substances  – Oil exists
as a mixture of hydrocarbons with traces of sulfur and other
compounds. Refining of Oil leads to production of harmful gases
and solids like Carbon Monoxide and Plastic.

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 OIL COMPARISON IN WORLD FIRST QUARTER OF 2020-
COMPARED WITH FIRST QUARTER OF 2019
 The coronavirus (Covid-19) has created the biggest global
crisis in generations, sending shock waves through health
systems, economies, and societies around the world. Faced with
an unprecedented situation, governments are focused on bringing
the disease under control and reviving their economies.
 As a consequence of global lockdown measures, mobility – 57%
of global oil demand – has declined at an unprecedented scale.
Road transport in regions with lockdowns in place has dropped
between 50% and 75%, with global average road transport
activity almost falling to 50% of the 2019 level by the end of
March 2020. 
 Air travel in certain regions has almost come to a halt, with
aviation activity in some European countries declining more than
90%. Aviation activity in China has rebounded slightly from the
low at the end of February, as lockdown measures have eased
slightly.
 Covid-19 containment measures will also reduce demand for
other oil products, such as LPG, ethane, naphtha and residual
fuel, but the impact is likely to be less acute than for gasoline,
diesel and jet fuel. Demand is increasing for certain
petrochemical products because of greater consumer demand for
packaging and demand for personal protective equipment, with a
notable potential for increased PET demand.
 The same factors are likely to weigh on diesel fuel consumption,
but not to the same extent. A substantial share of diesel demand
globally is used in trucks and ships to transport goods, or in the
manufacturing sector, rather than in passenger cars. While
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 demand has no doubt been affected by containment, owing to the
closure of shops in many countries, several basic activities and
industries have remained open, thus providing a demand floor.

  This reduction of financial resources also undermines the ability

of the oil industry to develop some of the technologies needed for
clean energy transitions around the world. 
  Even with demand falling by a record amount this year, oil
companies still face the challenges of investing to offset natural
production declines and to meet future growth.

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 OIL MARKETS FACE MAJOR CHALLENGES
 The arrival of the coronavirus is rattling a global oil market that
was already facing challenges. On the demand side, growth in
2019 was significantly weaker than expected and new vehicle
efficiency measures have started to weigh on transport fuels.
 Refining capacity additions in recent years have outstripped
demand growth, bringing tough competition for an industry
already challenged by tightening product specifications, most
notably the new International Maritime Organisation (IMO)
bunker rules introduced at the beginning of 2020.
 On the supply side, geopolitics remain a wild card. Production
losses from Iran, Libya and Venezuela have reached a combined
3.5 mb/d since the start of 2018. Even before the coronavirus,
markets had been over-supplied, leading OPEC+ producers to
cut output. Looking beyond the short term, the oil market looks
comfortably supplied through 2025.
 global oil demand growth is set to weaken as consumption of
transport fuels increases more slowly. 
 Petrochemicals become an ever more important driver, with
naphtha, liquefied petroleum gas (LPG) and ethane responsible
for half of all growth. Efforts to improve the sustainability of the
plastics industry will run up against the steady increase in
demand from consumers in developing countries.
 The United States leads the way as the largest source of new
supply. Given its huge resource potential, it could produce even
more if prices end up higher than assumed in this report. Brazil,
Guyana, Iraq and the United Arab Emirates also deliver
impressive gains.

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OIL MARKETS UPENDED BY DEMAND AND SUPPLY
CONCERNS
 In the past few weeks, Covid-19 (coronavirus) has gone from
being a Chinese health crisis to a global health emergency. While
China has taken strong measures in response to the outbreak, the
situation appears to be worsening around the world, with more
than 60 countries reporting cases.
 While the situation remains fluid, we expect global oil demand to
fall in 2020 – the first full-year decline in more than a decade –
because of the deep contraction in China, which accounted for
more than 80% of global oil demand growth in 2019, and major
disruptions to travel and trade.
 The immediate outlook for the oil market will ultimately depend
on how quickly governments move to contain the coronavirus
outbreak, how successful their efforts are, and what lingering
impact the global health crisis has on economic activity.
 At this stage, high uncertainty over the course of the outbreak
has led us to propose alternatives to our base case – a more
pessimistic one in which global measures are less successful in
containing the virus; and an optimistic case in which the virus is
contained quickly.
  European demand remains subdued in the third quarter, and
demand in the United States grows at a slower pace. In this
pessimistic case, global oil demand could decline by 730,000
barrels per day in 2020.

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GLOBAL OIL DEMAND GROWTH ,2011-2015

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 NET OIL IMPORTS SHARE OF DEMAND IN ASIA IN
2025

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 OIL PRISES TAKING ACUTE DOWN PATH

 Oil prices crashed through zero, closing out the day at -$37 per barrel, an
unknown meltdown.

 There are mitigating circumstances to these insane numbers. The prices for

WTI reflect the contract for May, which expires this week. The collapse is a
reflection of traders abandoning the May contract, and moving on to June.

 The thinly-traded May contract loses some relevance, and analysts say that
the June contract – trading at $20 per barrel as of Monday – now becomes
the important number to watch.

 Prices went negative because the physical market in Oklahoma and Texas is
so overwhelmed. OPEC+ did agree to historic production cuts, but not for
April. In any event, the cuts pale in comparison to the decline in demand. But
taken together, the effects of the price war on the supply side are colliding
against the depths of demand destruction at the same time.

 The result is really ugly. Nobody wants physical delivery of WTI for May, and
with storage options dwindling in some places, traders liquidated their
positions, selling contracts at crazy discounts. With the contract expiring on
Tuesday, nobody wanted to be left holding the bag.

 Unable to actually accept physical delivery, traders ended up paying

someone to take oil off of their hands. Surely, some fascinating reportage will
be written about the last guy that got stuck with an unwanted May contract.
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 INDIA’S FUEL DEMAND SHOWS
SIGHNS OF RECOVERY
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  India's fuel demand is set to recover as authorities eased restrictions from
Monday on industrial activity and transport in areas that have contained the
spread of coronavirus.
 India's fuel demand is set to recover as authorities eased restrictions from
Monday on industrial activity and transport in areas that have contained the
spread of coronavirus.
 State companies' sale of gasoil and gasoline is also showing signs of demand
revival. Sales of two fuel gasoil and gasoline in the later part of April
recovered from the first half of the month, provisional industry data provided
by two sources, who asked not to be named, shows.
 "Sales of petrol, diesel and jet fuel have reduced by 70% in April from a year
ago,

"From April 17 some activity picked up in rural India and from today, activity
will be stepped up in rest of the country, which will push up demand."
 The nationwide lockdown, among the world's strictest, is being relaxed in
some areas with fewer infections, although it will stay until May 17, the
government said last week. The measure was adopted on March 25 and
extended twice.

"This is an unprecedented situation when fuel and oil demandhave come

down drastically because of lockdown. Despite all these challenges the
supply chain is intact and refineries are operating."

Indian refiners, which had cut crude processing because of a fall in fuel
demand, are now gradually raising output.

"There are signs of a pick-up in demand which should accentuate with more
relaxations coming in," said M.K. Surana, the chairman of HPCL.

Indian state refiners' crude processing will 'definitely' go up with a pick-up in

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 demand, he added.

India's fuel sales in April fell about 50%, the same level as in the first half, as
sales of liquefied petroleum gas (LPG)or cooking gas softened later in month.

State retailers sold 12% more LPG in April from a year earlier while sale of jet
fuel plunged about 92%, the data showed.

In its latest report, the International Energy Agency said India's annual fuel

consumption, a proxy for oil demand, would fall 5.6% in 2020, versus a
forecast for growth of 2.4% in its March report.

ABOUT OPEC COUNTRIES

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Organization of the petroleum exporting countries (OPEC) is an intergovernmental organization of 13 nations founded
on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia and Venezuela), and
headquarters are located in Vienna, Austria (1965).

 As of September 2018, the 14 member countries accounted for an estimated 44 percent of global oil production and
81.5 percent of the world's "proven" oil reserves, giving OPEC a major influence on global oil prices that were
previously determined by the so-called "Seven Sisters" grouping of multinational oil companies.

A larger group called OPEC+ was formed in late 2016 to have more control on global crude oil market.

 Due to the COVID-19 pandemic the demand for OPEC oil has

 

fallen to a 30-year low in second quarter of 2020.

 The stated mission of the organization is to "coordinate and unify

the petroleum policies of its member countries and ensure the
stabilization of oil markets, in order to secure an efficient,
economic and regular supply of petroleum to consumers, a steady
income to producers, and a fair return on capital for those
investing in the petroleum industry.

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  The organization is also a significant provider of information
about the international oil market. The current OPEC members
are the following: ( Algeria, Angola, Equatorial
Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the
Congo, Saudi Arabia (the De facto leader), the United Arab
Emirates and Venezuela. Former OPEC members
are Ecuador, Indonesia and Qatar).

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 OPEC PRICE COMPARISON

COMPARISON OF OPEC BASKET WITH OTHER

OPEC BASKET WITH BRENT CRUDE OIL OPEC BASKET WITH
WTI CRUDE

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