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2018 Oil Price Forecast: Who Predicts Best? Information Document 2018 oil price forecast: who predicts best? Information document Amsterdam, March 2018 Since 2007, Roland Berger has published an annual review of available oil price forecasts Roland Berger study of oil price forecasts – February 2018, WTI based Last year's results > Since 2007, Roland Berger has published a yearly review of the oil price forecast Top-3 most accurate forecasting countries 1) > Major oil exporting countries use a forecasted value Average absolute year-on-year oil price forecasting error [%] of the oil price in their annual budgets Ø 20 Period 1999-2017 > We have studied the forecasting track records of the ten largest oil exporting countries from 1999 to 2017 Iraq 18 Nigeria 19 > The budgeted oil prices of the top-3 most accurate countries are used to forecast the oil price for the Saudi Arabia 23 year ahead > National oil price forecasts are compared to 1) Ø 55 forecasts from the major energy institutions: USD 55 forecast for 2017 NYMEX, EIA and OECD Iraq 42 Nigeria 52 Saudi Arabia 72 1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015) Source: Roland Berger 2 In addition to analyzing forecasting accuracy, Roland Berger's annual review examines current market dynamics Elements of this year's study 1 Analysis of 2017 Oil price development & market dynamics of 2017 Accuracy of oil price Analysis of the accuracy of countries and institutions as forecasters of the 2 forecasts oil price in 2017 and aggregate over the last years Forecast of the 2018 oil price based on national and institutional 3 Future oil prices forecasts Analysis of market dynamics for future oil supply and demand 3 1. Analysis of 2017 4 1 Analysis of 2017 In 2017, the average barrel price was USD 51/bbl, slightly lower than the USD 55/bbl forecasted by the top-3 forecasters Development of monthly WTI averages [USD/bbl], Jan 2006 – Dec 2017 150 140 Top-3 130 forecasts 120 110 100 90 80 70 USD 55 60 2017 average 50 51 40 30 20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: EIA; Roland Berger 5 1 Analysis of 2017 Both supply and demand grew in 2017 – For the first time since 2013, 2017 saw a consistent period of undersupply Global supply and demand of oil and net differential [m bbl/day] 100 95 90 85 2012 2013 2014 2015 2016 2017 1.7 1.3 1.3 1.5 1.5 0.8 0.6 0.9 Net change 0.4 0.0 0.1 0.0 -0.4 -0.5 -0.4 -0.4 -0.3 -0.7 -0.8 -0.8 -0.5 -0.6 -1.3 -1.2 2012 2013 2014 2015 2016 2017 Oversupply Undersupply Total global supply Total global consumption Source: EIA; Roland Berger 6 1 Analysis of 2017 This undersupply was driven by OPEC's extended production quota, which they are reportedly adhering to OPEC production quota and actual production [m bbl/day] 38.8 37.6 37.0 36.0 36.0 34.6 35.5 33.5 32.7 33.3 32.5 32.4 31.1 31.8 30.9 31.9 28.9 29.2 30.0 30.0 30.0 30.0 30.0 30.0 24.9 24.9 n/a 2009 2010 2011 2012 2013 2014 2015 2016 2017 Deviation from quota OPEC data 16.4% 17.7% 3.7% 8.9% 6.1% 3.0% 6.2% 10.9% -0.4% BP data 34.8% 39.2% 18.3% 23.3% 20.1% 20.1% 25.3% 29.4% n/a Quota Production – OPEC reports Production – BP statistical review Source: OPEC; BP Statistical Review of World Energy 2017; Roland Berger 7 1 Analysis of 2017 Overall, OPEC complied with the quota – Libya and Nigeria were excluded from the quota and increased production significantly OPEC oil production and difference with quota Difference with quota OPEC oil production 2017 ['000 bbl/day] ['000 bbl/day] [%] 1,039 Algeria 1,043 4 0.4% 1,673 Angola 1,639 -34 -2.0% Ecudaor 522 531 9 1.7% Equatorial Guinea1) 153 -18 -11.6% 135 Gabon1) 211 -11 -5.1% 200 3,797 Iran 3,811 14 0.4% 4,351 Iraq 4,445 94 2.2% 2,707 Kuwait 2,708 1 0.0% Libya2) 390 427 109.5% 817 2) 1,556 Nigeria 1,660 104 6.7% Qatar 618 -11 -1.8% 607 10,058 Saudi Arabia 9,953 -105 -1.0% 2,874 UAE 2,915 41 1.4% 1,972 Venezuela 1,916 -56 -2.8% Quota Production 2016 Production 2017 1) Quota not published; estimated based on overall 4.6% production cut; 2) Excluded from quota due to internal conflicts. 2016 production shown as quota Source: Zero Hedge; OPEC; Roland Berger 8 1 Analysis of 2017 The OPEC production decline was compensated by an increase in swing capacity from US shale oil, which dampened prices Profitability and growth of US shale oil WTI price and shale oil profitability [USD/bbl] 150 100 50 0 US shale oil production ['000 bbl/day] 12,757 11,779 12,354 10,073 8,894 7,549 7,862 6,784 7,263 7,817 8,175 8,113 7,125 6,816 6,620 Other 6,260 6,660 6,753 Shale 2,948 3,962 4,582 4,241 n/a 524 603 797 1,242 2,078 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Indicative break-even price of shale oil Profitability of shale oil US shale oil production Source: EIA; Rystad Energy; BP Statistical Review of World Energy 2017; Roland Berger 9 1 Analysis of 2017 The growth of US (shale) oil production by ~5.6 m bbl/day is the main reason behind the growth in global oil production Biggest changes in oil production between 2008 and 2016 Market share Rank Change in production ['000 bbl/day] 2008 2016 2008 2016 World total 9,256 US 5,570 8.2% 13.4% 3 1 Iraq 2,037 2.9% 4.8% 12 5 Saudi Arabia 1,687 12.9% 13.4% 1 1 Russia 1,276 12.0% 12.2% 2 3 Canada 1,253 3.9% 4.8% 7 6 Norway -472 3.0% 2.2% 11 14 United Kingdom -536 1.9% 1,1% 18 19 Mexico -710 3.8% 2.7% 8 11 Venezuela -812 3.9% 2.6% 6 12 Libya -1,394 2.2% 0.5% 17 30 Source: BP Statistical Review of World Energy 2017; Roland Berger 10 2. Accuracy of oil price forecasts 11 2 Accuracy of oil price forecasts Saudi Arabia, the historical top forecaster, was much too bullish in 2017 – Institutions remain the better forecasters Absolute year-ahead oil price forecasting error, 2017 [%] Top 10 oil exporting countries and institutions 2017 forecast1) 2017 forecasting error Actual 50.9 Algeria 67.4 32% Iran 51.3 1% Iraq 41.7 18% Kuwait 75.2 48% Historically top-3 Mexico 43.0 16% best forecasters 51.6 1% had a forecast error Nigeria of 20% in 2017 Norway 48.3 5% Russia 36.8 28% Saudi Arabia 71.6 41% Venezuela 43.7 14% NYMEX 49.3 3% Average forecasting EIA 50.2 1% error: 8% OECD 41.4 19% 1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015) Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger 12 2 Accuracy of oil price forecasts In 2009, institutions started forecasting better than oil exporting countries – Since 2012, they are unbeaten Yearly oil price forecasting error, institutions and top-3 countries1), 2002-2017 [%] "Countries predict best" "Institutions predict best" 65 53 48 35 28 24 27 20 21 20 20 19 17 19 19 19 16 16 15 14 10 11 10 12 7 9 8 8 8 12 4 6 6 5 5 2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Institutions Top-3 most accurate countries 1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015) Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger 13 2 Accuracy of oil price forecasts The emergence of institutions as better forecasters coincides with the rise of the US as a major (shale) oil producer and exporter Crude oil production per country and US exports, 2007-2017 ['000 bbl/day] "Countries predict best" "Institutions predict best" CRUDE OIL 15,000 PRODUCTION 10,000 5,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 15,000 EXPORTS (all petroleum products) 10,000 5,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Saudi Arabia Russia USA Other producers Source: OPEC; EIA; Roland Berger 14 2 Accuracy of oil price forecasts Saudi Arabia's bullish forecast was driven by some misplaced estimates but mainly by management of the public budget Main drivers behind Saudi Arabia's bullish forecast Management of the public budget 1 > Between 1999 and 20161), Saudi Arabia's oil price forecast averaged 37% below the actual > The National Transformation Plan (NTP 2020) launched in 2016 has put extra pressure on Saudi Arabia's public budget > A less conservative estimate helps keep the public deficit as small as possible (8.9% of GDP in 2017), since the petroleum sector accounts for 87% of the public budget Interpretation of US shale oil break-even price > Saudi Arabia had not expected shale oil prices to drop below USD ~75/bbl, 2 so it underestimated US supplies at current oil prices Outlook on Iran's exports > Saudi Arabia expected the oil ban on Iran to be reinstated, removing ~3 m 3 bbl/day2), or 3.8% of the total exported volume, from the market 1) Excluding crisis years 2001, 2008 and 2015; 2) Based on Iran's exports of crude oil and petroleum products in 2016 Source: OPEC; CIA; Press reports; Roland Berger 15 3.
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