20180611-NATIXIS-The_probability_of_very_expensive_oil_is_not_zero_6页_629kb

Flash Economics Summary

Core Content

The document discusses the potential for very expensive oil prices, despite current market expectations of lower prices. It outlines several factors that could contribute to an increase in oil prices over the coming years.

Main Points

1. The Risk of Very Expensive Oil is Not Zero

• Global Demand vs. Production: Oil demand is growing faster than production, even with increased U.S. output.
• Sanctions on Iran: U.S. sanctions on Iran may reduce its oil production, which may not be fully offset by Saudi Arabia and Russia.
• Investment Cycle: There is a well-known four-year cycle between oil prices and investment in exploration and production. A decline in prices leads to reduced investment, which in turn leads to lower production and higher prices.

2. Market Expectations of Lower Prices

• Futures Prices: Oil futures indicate a general expectation of lower prices in the future.
• Shale Producers: U.S. shale oil producers are using forward-selling strategies, which contribute to the current low price environment.

3. Factors That Could Lead to High Oil Prices

(1) Global Oil Demand and Supply Imbalance

• Demand Growth: Emerging countries are driving a significant increase in oil demand.
• Production Growth: U.S. production growth is not sufficient to offset global demand.

(2) Impact of U.S. Sanctions on Iran

• Production Reduction: Sanctions could reduce Iranian oil production by up to 1 million barrels per day.
• Supply Gap: If Saudi Arabia and Russia do not increase production to match this reduction, oil prices could rise.

(3) Investment Cycle in Oil

• Investment and Prices: Low oil prices lead to reduced investment, which later results in lower production and higher prices.
• Current Trend: The investment decline from 2014–2016 is now starting to affect production, potentially leading to a period of higher prices.

Key Information

• Chart 1: Shows the expectation of declining oil prices in the future.
• Chart 2A, 2B, 2C: Illustrates the growing gap between global oil demand and production, with emerging countries as the main drivers of demand.
• Chart 3: Indicates the potential reduction in Iranian oil production due to sanctions.
• Chart 4: Suggests that Saudi Arabia and Russia may not increase production significantly.
• Chart 5A, 5B: Highlight the fiscal and economic constraints of Saudi Arabia and Russia, making them unlikely to boost production.
• Chart 6: Demonstrates the historical link between oil prices and investment levels in exploration and production.

Conclusion

The document concludes that a scenario of very high oil prices must be considered, given the interplay of rising global demand, the impact of sanctions on Iran, and the ongoing investment cycle. While the market currently expects lower prices, these factors could lead to a significant upward trend in oil prices over the next few years.

Disclaimer

• The document is intended for professional and qualified investors.
• It is confidential and not to be shared without permission.
• No liability is accepted for any use or interpretation of the information.
• The information is based on public data and not a personalized investment recommendation.
• The views expressed are those of the authors and do not represent the views of Natixis or any of its affiliates.