20150224-高盛-Oil_Gauge_Demand_is_recovering,_how_will_supply_respond__18页_741kb

Summary of Document: "Demand is recovering, how will supply respond?"

Core Content

The document analyzes the dynamics between global oil demand and supply, focusing on the impact of falling oil prices and the subsequent responses from both consumers and producers. It highlights the recovery in demand from emerging markets (EM), particularly China, India, and Brazil, and the continued growth in supply, especially from the U.S. and Brazil. It also discusses the potential risks to demand from the removal of fuel subsidies and the implications for the oil price outlook.

Main Points

Demand Recovery

• Global demand showed a sharp recovery in late 2014, driven by strong EM consumer growth and continued stabilization in DM (developed markets).
• China and India led the growth in gasoline demand, while China's diesel demand also saw a significant pick-up in 4Q14.
• Japan was a notable surprise with strong demand growth, partially offset by currency depreciation.
• Weak economic data in China suggests that the diesel recovery may be temporary, with PMIs falling below 50 in late 2014.

Supply Growth

• Supply remains overwhelming, especially in the U.S., where crude and product inventories are building at an accelerated rate.
• Non-OPEC supply growth has exceeded IEA expectations, with Brazil and the U.S. as the main contributors.
• OPEC production has remained stable above 30 mmbpd, with Saudi Arabia and Iraq offsetting Libyan production declines.
• OPEC effective spare capacity is expected to increase, even without major production growth in Iraq or Libyan recovery.

Supply Response

• Global oil producers have implemented aggressive capex cuts since 2014, the most significant since the 1980s.
• U.S. shale production is expected to slow in 2H15, while mature offshore basins in Latin America and Europe may see rising decline rates.
• US producers are primed for a recovery, which could limit commodity price upside.
• Exploration capex and activity in mature offshore regions are expected to stay low even if prices recover, due to structural overcapacity.

Inventory Build-Up

• Global inventories are building counter seasonally in late 2014, with the U.S. being the main driver.
• US crude and product inventories are at historically high levels, with storage utilization rising, particularly in PADD 2 and PADD 3.
• Brent-WTI spreads have widened significantly, which is favorable for U.S. refiners, with Valero highlighted as a top pick.
• Storage capacity risks are increasing, and a breach could lead to WTI decoupling from global prices.

Sub-sector Performance

• Asian oils and refiners have outperformed the sector, while refining stocks on both sides of the Atlantic have also performed well.
• E&Ps and services have seen the most significant share price declines relative to earnings revisions, reflecting the impact of lower oil prices.
• US E&Ps and oil services have experienced dramatic share price declines, with Seadrill and Transocean receiving Sell ratings.

Drilling Market Outlook

• Exploration capex and activity in mature offshore areas are unlikely to recover quickly, even with price increases.
• Uncontracted drilling capacity is expected to hit the market over the next 12–18 months, leading to pressure on day rates and utilization.
• Jack-up and floater rigs are set to exit shipyards in 2015 and 2016, further increasing supply-side pressure.
• Seadrill has unfunded yard installments and existing debt to refinance, which could pose financial risks in a low oil price environment.

Key Information

• U.S. supply growth remains strong, with 1.5–1.6 mmbpd of year-over-year increase in late 2014.
• Global supply growth in 2014 reached 1.3 mmbpd, with Brazil and U.S. leading the expansion.
• OPEC production has remained above 30 mmbpd, despite Libyan volatility.
• Fuel subsidy removal in countries like India, Indonesia, and Malaysia may blunt demand rebound if oil prices rise in 2015.
• Capex cuts are expected to slow supply growth, but US onshore remains a key rebalancing region due to its short-cycle nature.
• Inventory builds are overwhelming refining demand, with US storage utilization reaching >50% in some regions.
• Day rates are expected to fall due to uncontracted rigs and lower utilization.
• Seadrill and Transocean are Sell-rated due to financial risks and low utilization.
• US refiners are benefiting from wide Brent-WTI spreads, with Valero as a top pick.

Risks and Outlook

• Near-term demand risks include reduced economic growth impact due to fuel subsidy removal.
• Supply risks include decline in mature offshore fields, unfunded drilling costs, and potential storage capacity breaches.
• Oil prices are expected to remain lower, with U.S. producers likely to respond quickly to any price recovery.
• Global oil markets are oversupplied, with inventories building and supply growth continuing through 2015.

Conclusion

While global demand is recovering, particularly in emerging markets, supply remains strong, especially in the U.S. and Brazil, with no immediate signs of slowdown. Capex cuts and drilling market deterioration are expected to limit supply growth in the medium term, but mature offshore activity may underperform. Fuel subsidy removal and storage capacity constraints could affect the demand rebound, and oil prices are expected to remain lower due to continued supply growth and producer responsiveness.