Oil and gas activities, international market conditions (discontinued), Q4 2013

Brent Blend: 2012

The average Brent Blend crude price in 2012 was USD 111.7/bbl – 0.7 per cent higher than in 2011.

Despite global economic growth stagnation, the upward movement in the Brent Blend price was supported throughout 2012 by turmoil in the Middle East and supply disruptions in the North Sea fields.

The Brent Blend price surged in the first quarter of 2012, averaging at USD 118.4/bbl, up from 109/bbl in the fourth quarter of 2011. The oil market was nervous about the Iranian nuclear issue. On 23 January 2012, the EU agreed to an oil embargo on Iran, effective from July. Geopolitical problems in Syria, South Sudan and Yemen resulted in long-lasting supply disruptions from those countries. In addition, the supply from the North Sea was reduced by unplanned outages. Encouraging macroeconomic news from the USA and China, together with cold winter weather and speculative activities in the crude oil future markets also supported the crude prices in the first quarter.

In the second quarter, the Brent Blend price weakened significantly. The Brent Blend averaged at USD 108.8/bbl in the second quarter; almost USD 10/bbl lower than in the previous quarter. The deterioration in the Brent Blend price in the second quarter was largely driven by gloomy economics, abundant crude oil supplies and a large-scale speculative sell-off in the crude oil future markets. In June, the average Brent Blend price was only USD 95.9/bbl.

The crude price recovered gradually in the third quarter due to increased geopolitical tensions in the Middle East, tight North Sea supply, declines in crude oil stock piles and hopes for further monetary easing. In addition, the crude price was supported by unexpected positive economic news from the USA and improving economic sentiment as leading financial indexes continued to increase. In September, the average crude price had increased to USD 113/bbl. The average Brent Blend crude price in the third quarter came to USD 109.4/bbl.

Relative to the crude price level seen in September, the Brent Blend in the fourth quarter decreased as economic concerns overshadowed the worries over geopolitical tensions in the Middle East. In addition, the pending US fiscal cliff was considered by oil market participants as a significant down-side risk to crude oil demand. The average Brent Blend crude price in the fourth quarter came to USD 110.1/bbl.

Brent Blend: 2013

In 2013, the Brent Blend slipped USD 3/bbl year-on -year, or 2.66%, below the record year of 2012. The average Brent Blend crude price was 108.7/bbl in 2013. Prices remained supported despite increased shale oil production and the financial crises in several countries in the Euro zone. In 2013, prices were sustained by a variety of factors including growth in world oil demand, positive economic data from the USA and China, and political tensions in several MENA region countries.

From 24 December to 8 February, the Brent Blend increased by USD 10/bbl to USD 118.9/bbl. The oil market was relieved by the passage of an 11th hour deal by the US Congress that averted the fiscal cliff in early January. From mid-January, the crude price was supported by a shift in market sentiment amid expectations for a better economic outlook in China and the USA, and robust financial market activity and strong seasonal winter crude demand. From 19 February to 17 April, the Brent Blend decreased by USD 20/bbl to USD 97.7/bbl. Concerns over global economic growth, seasonal declines in international refinery runs, and increases in North Sea oil production contributed to a drop in crude oil prices. The average Brent Blend crude price in the first quarter came to USD 112.6/bbl.

The crude price recovered to USD 103/bbl in late April and was traded between USD 100/bbl and 106/bbl in May and June. The Brent Blend averaged at USD 103.3/bbl in the second quarter; USD 9.3/bbl lower than in the previous quarter.

From 28 June to 16 July, the Brent Blend increased by USD 7.2/bbl to USD 109.4/bbl. The increase was mainly due to the political unrest in Egypt and supply outages in the OPEC countries Libya, Iraq and Nigeria. The Brent Blend crude prices were relatively stable and flat during the next 40 days. In the last week of August the price increased and peaked to 116.6/bbl on 28 August. Syria`s suspected use of chemical weapons on 21 August elevated geopolitical tension and a significantly lower Libyan crude oil supply was the main reason for the price increase. Prices fell in the second week of September as the Russian proposal for Syria to surrender its chemical weapons was generally accepted by western countries. The average Brent Blend crude price in the third quarter came to USD 109.7/bbl.

From 16 September and throughout October the Brent Blend was traded in a narrow USD 3/bbl band, between USD 108/bbl and USD 111/bbl. In the first week of November the crude price decreased and bottomed out at 103.5/bbl on 7 November. Extensive maintenance on refineries resulted in weaker crude oil demand, which together with more ample physical oil supplies eased the crude oil market. In the middle of November the crude price increased and remained relatively stable at around USD 110/bbl throughout the year. The Brent Blend prices were supported by stronger winter demand and continued supply outages in Libya. The average Brent Blend crude price in the fourth quarter came to USD 109.4/bbl.

Global production and demand for crude oil

According to the International Energy Association (IEA) Monthly Oil Market Report, the global production of crude oil came to 90.9 million barrels a day in 2012. This is an increase of 2.2 million barrels a day compared with the crude production in 2011. In 2013, the crude oil production grew to 91.5 million barrels a day.

Also according to the IEA, the global demand for crude oil came to 90.1 million barrels a day in 2012. This is 1.1 million barrels a day higher than the crude oil demand in 2011. In 2013, the crude oil demand increased to 91.3 million barrels a day.

The global crude oil demand in 2014 is estimated at 92.7 million barrels a day by the IEA. The sum of total non-OPEC and OPEC NGL production in 2014 is now estimated at 63 million barrels a day. This implies a demand for OPEC oil of 29.7 million barrels a day, which is 0.6 barrels fewer than in 2013. The expected demand for OPEC oil is lower because the estimated growth in non-OPEC production exceeds the expected growth in global demand in 2014.