International Oil Market and Oil Trading by ltx81750

VIEWS: 142 PAGES: 15

									                                                         LITASCO SA
                                 LUKOIL INTERNATIONAL TRADING AND SUPPLY COMPANY




International Oil Market and Oil Trading

            Gati Al-Jebouri, CEO LITASCO SA
  Haute Ecole de Gestion, Geneva, September 19, 2008
     KEY DETAILS OF THE LITASCO GROUP


                                                LITASCO Corporate structure

                                                • 100% subsidiary of OAO LUKOIL
                                                  (Moscow)
                                                • Headquarters and company
                                                  registration in Geneva
                                                • Over 300 staff in 14 countries
                                                  (~ 180 in Geneva)


         2007 Results

         • Total sales of USD 53.4 billion
           (about 60% of OAO LUKOIL
           turnover)
         • Operating profit of USD 315 mln
         • Crude oil sales of 44.8 million mt
         • Product sales of 55.8 million mt

1
    Source: LITASCO SA, LUKOIL
    WHERE DOES LITASCO ADD VALUE?


       LITASCO’s mission as LUKOIL’s trading arm, is to add value to LUKOIL’s
            crude and products after they leave the export location point




           Point of final sale                           LITASCO value add area

                                                                                Delivered to
    Wellhead    Refinery gate        Inland       Shore tanks   Sea transport
                                                                                end customer
                                 transportation




               Hydrocarbon flow - from wellhead to pump

2
     GLOBAL OIL DEMAND VS PRODUCTION BY REGION THROUGH 2030

                                                                                                                                                    112.5             112.9
     Trading is the natural result of                       Mln bbls per day
      regional demand and supply                                                                        90.46
                                                                                                        101.5            90.46
                                                                                                                         103.0                         7.8            12.3
      imbalances                                                                                                                                       4.3
                                                                                                             7            9.7                          9.5
                                                               84.3          84.6                            4                                                        17
                                                                                                            8.2          14.9
                        Central and S. America                  5.6           7.2
                                        Africa                  2.9                                                                                   30.8
                                  Middle East                   6.2          10.4                          24.3
                                                                                                                                                                      33.7
                                 Non-OECD Asia                 15.5                                                      31.1
                                                                             25.4                           6.3                                        6.9
               Non-OECD Europe & Eurasia                        4.9
                                                                                                             9                                         9.2
                                                                8.6                                                                                                   8.7
                                       OECD Asia                                                                          8.4
                                                                              7.7                                                                      16
                                                               15.5                                         16
                                                                                                                         17.2                                         18.9
                                    OECD Europe                              12.5
                                                                                         0.7                                        0.9                                       0.9
                                                                              5.5                                         3.5                                         3.4
                                                               25.1                                        26.7                                        28
                                                                             15.2                                        17.4                                         18
                         OECD North America
                                                           Demand         Production                   Demand          Production                  Demand         Production
                                                                      2007                                        2020                                       2030
    • World overall oil consumption is forecast to grow at 1.2% per year over the next 25 years
    • OECD world oil demand is forecast to grow at 0.3% per year over the same period while non-OECD world oil demand is forecast to
      grow at 2.2% per year
    • The fastest growing market will be China (+3.4% per year over the next 5 years)
    • World oil production capacity is forecast to grow at 1.4% per year over the next 25 years
    • Large oil producers are forecast to meet the increase in demand over the same period:
          • OPEC: +1.3% per year
          • Caspian area: +3.6% per year
    • Large oil consumers will see their local production lag behind:
          • North America: +0.7% per year over the next 25 years


    Source: History: Energy Information Administration (EIA),Office of Energy Markets and End Use, 2008. Projections: EIA, Generate World Oil Balance Model (2008),
3   International oil outlook 2008, Litasco SA analysis
    WHAT DOES A TRADING COMPANY DO?


       • Buy and sell physical and paper barrels
       • Match supplier and consumer requirements through:
               • flexible pricing / financing
               • customized delivery patterns
               • price risk management




       • Trading companies take advantage of location or quality
         imbalances, shipping optimization and price structure. They
         rely on financial instruments to hedge or manage their price
         risk exposure
       • By doing so, they ensure that customer’s demand
         requirements are met while sourcing from prevailing, most
         commercially attractive supply region
4
    TRADING FOCUS OF LITASCO’S MAIN INTERNATIONAL OFFICES
                                                                                 Stockholm

                                                                                   Hamburg
                                                                 Rotterdam          Geneva

                                           New Jersey                                              Dubai



                                                                                                                       Singapore




                  LUKOIL                   LUKOIL             LITASCO                LUKOIL                LITASCO                 LUKOIL
                  Pan Americas             Benelux            Geneva                 Hamburg               Sweden                  Asia Pacific
    Focus of           Crude oil and all     Local market       Crude oil               Naphtha              Local market             Marine fuels in
    operations         products              fuel oil and       All products            Gasoil               gasoil sales             Singapore
                                             marine fuels       Petrochemicals          Gasoline                                      Trading all
                                                                                                                                      products in
                                                                                                                                      Singapore and
                                                                                                                                      the Middle East


    Main               Transatlantic         Benelux coast      Baltic - W Europe       Africa-Western       Intra-                   Persian Gulf–
    markets            Caribbean US          Baltic-Benelux     Black Sea –             Europe               Scandinavian             India–SE Asia
    served                                   Benelux-Far        Mediterranean                                (Gothenburg-
                                             East/US                                                         Copenhagen)
                                                                NW Russia - Europe

                                                                     85.8


                            10.3
    Volume                                           4.7                                                                                   6.2
                                                                                             3.1
    traded 2007                                                                                                  0.7
    million mt


5
    MAIN CATEGORIES OF PARTICIPANTS IN THE INTERNATIONAL
    OIL MARKET
                           Examples                     Participation in the market

    National Oil           Saudi Aramco, INOC,     –    NOCs mostly sell under term contracts (NOCs account for 70% of
    Companies (NOCs)                                    world production and for most of the OPEC production)
                           PDVSA, KPC, etc
                                                   –    Limited number of term contracts prevent re-selling to third parties


    International Oil      ExxonMobil, Total,       –   Privately owned international majors are large vertically integrated
    Majors and Their       Chevron, ConocoPhillips,     companies that are present in all the activities along the supply
    Trading Arms
                           BP, Shell, LUKOIL , etc      chain (upstream exploration and production, refining, trading,
                                                        downstream distribution and marketing through fuel distribution
                                                        networks)
                                                   –    Majors do not trade all of their production, because an important
                                                        part of it is devoted to the needs of their own supply chain system
                                                   –    Majors have a risk aversion corporate profile that discourages high
                                                        levels of exposure to price risks and the resulting “speculation”


    Independent Oil        Vitol, Glencore,       –     Trade energy and other commodities while holding few or no
    Trading Companies      Sempra, Trafigura, etc       production assets
                                                  –     Actively trade in spot physical and derivatives markets


    Financial houses and   Morgan Stanley,         –    Trade a wide spectrum of commodities while offering other financial
    non industry           J. Aron,                     products and services
    speculators                                    –    Have a controlled speculative exposure in oil derivatives markets,
                           hedge funds, etc
                                                        similar to other financial markets




6
    OIL AND TOTAL ENERGY WORLD CONSUMPTION

    The world’s total energy consumption is over 460 quadrillion BTU. Along with
    electricity, natural gas and coal, petroleum plays a central role in satisfying the
    demand: its contribution is around 36% of total energy consumption

      World share of petroleum
      consumption by sector*
                                                        • The transportation and the industrial sectors
                                   % of total             are the main consumers of petroleum
           Sector
                                  consumption           • The consumption of these two sectors is
                                                          projected to continue to grow in the future,
    Transportation                               51%      while consumption of the other sectors will
                                                          stay stable
    Industrial                                   33%
                                                        • Transportation consumes petroleum
    Electric power                                        products, such as gasoline and gasoil (motor
                                                   7%
    generation                                            vehicles), bunker fuel oil (marine
                                                          transportation), jet fuel / kerosene (aviation)
    Residential                                    6%   • The industrial sector is composed by the
                                                          chemical and the petrochemical industries
    Commercial                                     3%     that use products, such as LPG and naphtha
                                                          as feedstock




7   * Source: EIA – International Energy Outlook 2007
    Evolution of oil trading - Physical commodity markets, derivatives
    markets and price determination
         Volumes Traded Annually
                                               Crude oil and all major refined petroleum products
                      3% 5%
                                                trade on international markets
                                               Liquid and transparent futures markets allow
                                                participants to « hedge » their spot and term
                                                supply contracts prices in the forward months
       92%
                                               Appropriate financial instruments enable industry
               Paper market
                                                participants to manage their price risk exposure
               =10 to 15 times                  and offer additional profit opportunities
               the size of the
               physical market
                                               The main price indexes known to the general
                                                public today are futures
      OPEC production                             –   WTI: traded on the NYMEX
      Rest of the world production
      Total volume (physical+papaer) traded       –   Brent: traded on the ICE in London


          In the modern oil markets, far greater volumes are traded on the derivatives
           (paper) markets than on physical markets
          Because of the vast liquidity and transparency of the futures contracts, physical
           oil prices are driven by the paper market
          Financial players and “speculators” such as hedge funds trade on these markets
           in addition to traditional industry participants (producers, refiners, end users)
8
    Paper market growth – what does it mean in US$ terms?




                                                                                                                                                                                                           22612.3
                                                                              Value of WTI trades at NYMEX
                                                                                                                                                                                                                                                                                   Lots traded monthly in 2007-2008

                            20,000
                                              Since the start of crude price rise in 1999                                                                                                                                                                  30,000,000

                                            NYMEX paper market grew 30+fold from $700




                                                                                                                                                                                                                                Lots, 1 Lot = 1,000 bbls
                                                                                                                                                                                                                                                           25,000,000
                                                       billion to $23 trillion
              USD billion



                            15,000                                                                                                                                                                                                                         20,000,000




                                                                                                                                                                                      9275.9
                                                                                                                                                                                                                                                           15,000,000
                            10,000




                                                                                                                                                                 4691.1
                                                                                                                                                                                                                                                           10,000,000




                                                                                                                                                3506.0
                                                                                                                               2194.0
                                                                                                              1411.7
                                                                                             1195.1
                             5,000
                                                            1120.0


                                                                             973.2                                                                                                                                                                          5,000,000
                                            731.2




                                                                                                                                                                                                                                                                      0
                                    0




                                                                                                                                                                                                                                                                          N




                                                                                                                                                                                                                                                                                                                          N
                                                                                                                                                                                                                                                                                       AY




                                                                                                                                                                                                                                                                                                          P

                                                                                                                                                                                                                                                                                                                V




                                                                                                                                                                                                                                                                                                                                     AY




                                                                                                                                                                                                                                                                                                                                                                       P
                                                                                                                                                                                                                                                                                                 L




                                                                                                                                                                                                                                                                                                                                                          L
                                                                                                                                                                                                                                                                                  AR




                                                                                                                                                                                                                                                                                                                                    AR
                                                                                                                                                                                                                                                                     JA




                                                                                                                                                                                                                                                                                                JU




                                                                                                                                                                                                                                                                                                                         JA




                                                                                                                                                                                                                                                                                                                                                         JU
                                          99



                                                      00



                                                                       01



                                                                                       02



                                                                                                        03



                                                                                                                         04



                                                                                                                                          05



                                                                                                                                                            06



                                                                                                                                                                             07



                                                                                                                                                                                                  08




                                                                                                                                                                                                                                                                                                         SE




                                                                                                                                                                                                                                                                                                                                                                   SE
                                                                                                                                                                                                                                                                                                               NO
                                                                                                                                                                                                                                                                                       M




                                                                                                                                                                                                                                                                                                                                   M
                                                                                                                                                                                                                                                                              M




                                                                                                                                                                                                                                                                                                                                   M
                                        19



                                                    20



                                                                     20



                                                                                     20



                                                                                                      20



                                                                                                                       20



                                                                                                                                        20



                                                                                                                                                          20



                                                                                                                                                                           20



                                                                                                                                                                                                20
                                                                             Annual trades and WTI price
                                                                                                                                                                                                       0
                                                                                                                                                                                                     .0
                                                                                                                                                                                                  114
                      250.00                                                                                                                                                                             120.00                                                               Average monthly WTI price 2007-2008




                                                                                                                                                                                                                                                                                                                        .9 3
                                                                                                                                                                                                                                                                                                                       .3 0
                                                                                                                                                                                                                                                            150.00




                                                                                                                                                                                                                                                                                                                   .3 8
                                                                                                                                                                                                                                                                                                                  1 33
                                                                                                                                                                                                                                                                                                                 133
                                                                                                                                                                                                                     100.00
                      200.00                                                                                                                                                                                                                                140.00




                                                                                                                                                                                                                                                                                                             125



                                                                                                                                                                                                                                                                                                              .5 8
                                                                                                                                                                                  0




                                                                                                                                                                                                                                                                                                            .6 3
                                                                                                                                                                                .2                                                                          130.00




                                                                                                                                                                                                                                                                                                        11 6
                                                                                                                                                                 2
                                                                                                                                                                             72




                                                                                                                                                                                                                                                                                                        .4 5
                                                                                                                                                               .0




                                                                                                                                                                                                                                                                                                       112




                                                                                                                                                                                                                                                                                                       .9 5
                                                                                                                                                                                                                     80.00
                                                                                                                                                            66                                                                                              120.00




                                                                                                                                                                                                                                                                                                    105
                                                                                                                                              59
    Million lots




                                                                                                                                                                                                                                                                                                   102
                      150.00
                                                                                                                                            6.




                                                                                                                                                                                                                                                                                                     9
                                                                                                                                                                                                                                                                                                     4
                                                                                                                                                                                                                              USD/bbl




                                                                                                                                                                                                                                                                                                    8
                                                                                                                                                                                                                                                                                              9 5 .3
                                                                                                                                                                                                                                                            110.00




                                                                                                                                                                                                                                                                                                   7
                                                                                                                                                                                                                                                                                             9 4 .7

                                                                                                                                                                                                                                                                                            9 2 .9
                                                                                                                                           5




                                                                                                                                                                                                                                                                                           9 1 .3
                                                                                                                                                                                                                                                                                               7
                                                                                                                                                                                                                                                  USD/bbl
                                                                                                                                 9                                                                                   60.00




                                                                                                                                                                                                                                                                                        8 5 .8
                                                                                                                                                                                                                                                            100.00
                                                                                                                               .4




                                                                                                                                                                                                                                                                                            8
                                                                                                                                                                                                                                                                                     7 9 .9
                                                                                                                          41                                                                       198.4




                                                                                                                                                                                                                                                                                        0
                                                                                                                                                                                                                                                                                       6
                      100.00                                7                                               07                                                                                                                                               90.00




                                                                                                                                                                                                                                                                                 7 4 .1
                                                                                                                                                                                                                                                                                7 2 .3
                                                          .3                                              1.




                                                                                                                                                                                                                                                                                     4
                                                                           93                6




                                                                                                                                                                                                                                                                              6 7 .4
                                                                                           .1




                                                                                                                                                                                                                                                                                   4
                                                       30




                                                                                                                                                                                                                                                                                   0
                                                                                                                                                                                                                     40.00
                                                                         5.                              3                                                                                                                                                   80.00




                                                                                                                                                                                                                                                                                 2
                                                                                                                                                                                                                                                                           6 3 .8
                                                                                                                                                                                                                                                                           6 3 .4
                                                                                                                                                                                                                                                                                1
                                             31                                         26




                                                                                                                                                                                                                                                                         60 .6
                                                                                                                                                                              128.5




                                                                                                                                                                                                                                                                         5 9 .3
                                                                        2
                                           9.




                                                                                                                                                                                                                                                                             4
                                                                                                                                                                                                                                                             70.00




                                                                                                                                                                                                                                                                      5 4 .1
                            50.00
                                          1
                                                                                                                                                                                                                                                             60.00
                                                                                                                                                             71.1




                                                                                                                                                                                                                     20.00
                                                                                                                                            62.0
                                                                                                                           52.9
                                                                                         45.7


                                                                                                          45.4
                                          37.9


                                                        36.9


                                                                         37.5




                                                                                                                                                                                                                                                             50.00
                                                                                                                                                                                                                                                             40.00
                             0.00                                                                                                                                                                                    0.00
                                                                                                                                                                                                                                                                          N                          L                                                             L
                                                                                                                                                                                                                                                                     JA           AR       AY   JU       SE
                                                                                                                                                                                                                                                                                                           P         V
                                                                                                                                                                                                                                                                                                                          JA
                                                                                                                                                                                                                                                                                                                               N
                                                                                                                                                                                                                                                                                                                                           AR       AY        JU        SE
                                                                                                                                                                                                                                                                                                                                                                          P
                                       99              00               01              02               03               04               05               06               07                   08                                                                          M        M                        NO                     M        M
                                    19              20               20              20               20               20               20               20               20                   20

9
    Source: Nymex, Litasco * 2008 Extrapolated from Jan-Sept 2008 results
     Paper market influence over oil prices
                                               Non commercial players
                                                (hedge funds, investors and
                                                entities with no direct
                                                involvement in oil) drive the
                                                market prices according to
                                                their global investment
                                                positions
                                               When building up long net
                                                positions oil prices rise…
                                               …Conversely when those
                                                long positions are unwound
                                                or when they initiate short
                                                positions first oil prices
                                                decline
                                               As traded paper barrels
                                                outnumber physical barrels
                                                (about: x10 times) oil
                                                producers have limited
                                                leverage to drive prices


      Source: CFTC / LITASCO
10    *Net position: “Longs” minus “Shorts”
     THE OIL MARKET EVOLUTION



                       Before           Today

     Price              Stable          Volatile

     Participants       Limited         Numerous
                                         Fundamentals and
     Market Forces      Fundamentals
                                          Sentiments
     Trade              Regional        Global
                                         Paper (Derivatives =
     Type of Business  Physical Only
                                          10/15x Physical Volumes)




11
     NEW OIL MARKET PARTICIPANTS CHANGE MARKET NATURE

                BEFORE                                                    NOW


                                                                               Global
                                                               Banks          trading
               Banks                                         related to      housess
             related to                                       oil trade
              oil trade
                                                         Oil traders
                             Oil
             Oil          companies
                                                         Oil companies
                                                                                    Hedge
          traders
                                                                                    funds
                                                                     Other
                                                                   Financial
                                                                  institutions




       The market today features a radically different set of players with varied agendas and
     targets as well as the capability of playing various commodity markets against each other
                             and against stock market or money market


12
         Key elements affecting prices and price trends

               2004 to mid 2006                             2007                                   2008

        Near term demand-supply               Near term outlook                   Near term outlook
         tightness                                                                      – Spread of US banking crisis
           – Stronger than expected                – Warm weather. Fears of a               and global demand
               economic and oil demand                 hard USA economic                    deterioration
               growth                                  landing                          –   Non-OPEC growth lower
           –   Less non-OPEC supply growth.        –   Non-OPEC growth                      than expected, OPEC keep
               Less OPEC spare capacity            –   Despite OPEC cuts spare              sustained production. Low
           –   Refining capacity near                  capacity concerns remain             inventories
               maximum utilisation                 –   More Bio fuels capacity          –   New capacity added
                                                                                        –   Bio fuels

        Medium/ L-T supply-demand             Medium term outlook                 Medium term outlook
         tightness
           – Projected L-T demand growth           – Bio-fuels/CO2                      – Lower demand due to global
           – Slower growth/peaking non-            – Slower growth/peaking                  economy downturn
               OPEC                                    non-OPEC                         – Slower growth in both OPEC
           –   Lack of increases in OPEC           –   Lack of increases in OPEC            and non-OPEC
               capacity                                capacity                         –   Lack of increases in OPEC
                                                                                            capacity

        Concerns over supply                  Concerns over supply                Concerns over supply
         disruptions                            disruptions                          disruptions
           – Geopolitical risks, hurricanes        – Same risks                         – Same risks
        Greater investors’ interest in        Investors keep on buying            Too high prices affect
         commodities                            commodities                          demand and prices fall
13   Source: IMF, EIA, PIRA, LITASCO
     THANK YOU!

     Visit our web sites:
     www.lukoil.com
     www.litasco.com




14

								
To top