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2.78 MB
Extraction Summary
2
People
5
Organizations
15
Locations
3
Events
2
Relationships
4
Quotes
Document Information
Type:
Financial research report / market analysis slide
File Size:
2.78 MB
Summary
This document is a UBS financial research slide titled 'Energy' dated October 2012, analyzing the crude oil market. It discusses geopolitical risks involving Syria, Turkey, and Iran, provides price targets for Brent crude under positive and negative scenarios, and offers tactical and strategic investment recommendations. The document bears the Bates stamp HOUSE_OVERSIGHT_025283, indicating it was part of a document production for a House Oversight Committee investigation.
People (2)
| Name | Role | Context |
|---|---|---|
| Dominic Schnider | CIO's asset class specialist |
Listed as a contact for further information at UBS.
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| Giovanni Staunovo | CIO's asset class specialist |
Listed as a contact for further information at UBS.
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Organizations (5)
| Name | Type | Context |
|---|---|---|
| UBS |
Creator of the report.
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| OPEC |
Mentioned regarding balancing the oil market and supply cuts.
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| Fed |
Mentioned in the negative scenario regarding promoting growth.
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| IEA |
Mentioned regarding an upcoming oil market report.
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| House Oversight Committee |
Implied by the Bates stamp 'HOUSE_OVERSIGHT'.
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Locations (15)
| Location | Context |
|---|---|
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Mentioned regarding civil war and oil exports.
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Mentioned regarding escalation with Syria and pipelines.
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Turkish port mentioned as an export point.
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Location in Iraq mentioned for the Kirkuk-Ceyhan pipeline.
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Source of oil flow via Turkey.
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Mentioned for strong crude oil output.
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Mentioned regarding economic tail risk and Eurozone breakup.
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Mentioned regarding social turmoil.
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Mentioned regarding embargoes, nuclear facilities, and tensions.
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Mentioned as a choke point in a military confrontation scenario.
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Mentioned regarding demand growth and stock building.
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Mentioned regarding elections, gasoline mandates, and crude supply progress.
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Listed in demand chart.
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Listed in demand chart.
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Implied by mention of 'Israeli air strike'.
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Relationships (2)
Listed as CIO's asset class specialist with a UBS email address.
Listed as CIO's asset class specialist with a UBS email address.
Key Quotes (4)
"Brent (24 Oct): USD 109/bbl"Source
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Quote #1
"Preference: neutral"Source
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Quote #2
"We regard the long end of the forward curve in crude oil as mispriced."Source
HOUSE_OVERSIGHT_025283.jpg
Quote #3
"The biggest risk related to a potential military confrontation is an Israeli air strike on nuclear facilities in Iran."Source
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Quote #4
Full Extracted Text
Complete text extracted from the document (4,299 characters)
Energy
Preference: neutral
Preference: neutral
UBS View (crude oil)
Brent (24 Oct): USD 109/bbl (last month: USD 111/bbl)
Brent 6-month target: USD 105-110/bbl
Brent (24 Oct): USD 109/bbl (last month: USD 111/bbl)
Brent 6-month target: USD 105-110/bbl
• Growing fear over an escalation of the Syrian civil war, involving Turkey, allowed crude oil prices to move higher again. While Syria's crude oil exports already dropped to near zero due to international sanctions, the oil market's concerns relate to the Kirkuk–Ceyhan oil pipeline (Iraq-Turkey – capacity of 0.4mbpd) and the crude exports from the Turkish port of Ceyhan, around 70km from the Syrian border.
• Though we believe that Syria and Turkey are not interested in a military confrontation, a stop of crude oil flows from Iraq via Turkey would curb global incremental crude oil supply in 4Q12 by more than 50%. It would also tighten up the market balance in early 2013 and put additional pressure on the structurally low spare capacity in the crude oil market.
• In the absence of a further escalation, which remains our base case, ebbing news related to Syria-Turkey is likely to ease supply concerns. This should keep the market focus on weak demand growth and strong crude oil output from North America, allowing the Brent price to temporarily reach USD 95/bbl.
• A weaker USD, reduced economic tail risk for Europe, ongoing social turmoil in the Middle East and North Africa and the risk that the Iranian topic heats up again after the US presidential elections are likely to keep the Brent price around USD 105-110/oz in 6 months.
• Though we believe that Syria and Turkey are not interested in a military confrontation, a stop of crude oil flows from Iraq via Turkey would curb global incremental crude oil supply in 4Q12 by more than 50%. It would also tighten up the market balance in early 2013 and put additional pressure on the structurally low spare capacity in the crude oil market.
• In the absence of a further escalation, which remains our base case, ebbing news related to Syria-Turkey is likely to ease supply concerns. This should keep the market focus on weak demand growth and strong crude oil output from North America, allowing the Brent price to temporarily reach USD 95/bbl.
• A weaker USD, reduced economic tail risk for Europe, ongoing social turmoil in the Middle East and North Africa and the risk that the Iranian topic heats up again after the US presidential elections are likely to keep the Brent price around USD 105-110/oz in 6 months.
Recommendations
Tactical (6 months)
• OPEC is in a good position to balance the oil market, which should limit the price weakness. Along with central banks' support and with the geopolitical risks remaining, we believe that the potential downside for the oil price has declined, thereby warranting allocation.
Strategic (3–5 years)
• We regard the long end of the forward curve in crude oil as mispriced. To satisfy emerging market demand in the long run, prices around USD 90–95/bbl are unlikely to secure the needed investments to keep supply growing adequately. This gives strategically oriented crude oil investors the opportunity to build up some long-term crude oil exposure over the next three to five years.
Tactical (6 months)
• OPEC is in a good position to balance the oil market, which should limit the price weakness. Along with central banks' support and with the geopolitical risks remaining, we believe that the potential downside for the oil price has declined, thereby warranting allocation.
Strategic (3–5 years)
• We regard the long end of the forward curve in crude oil as mispriced. To satisfy emerging market demand in the long run, prices around USD 90–95/bbl are unlikely to secure the needed investments to keep supply growing adequately. This gives strategically oriented crude oil investors the opportunity to build up some long-term crude oil exposure over the next three to five years.
Positive scenario
Brent 6-month target: USD 140–180/bbl
• Iranian oil exports are subject to a complete embargo, which would drain another 0.5–0.75 mbpd of global crude oil supply. Alternatively, a military confrontation that affects crude oil supply via the Strait of Hormuz would be the ultimate supply shock, requiring crude oil to be rationed on a large scale.
Brent 6-month target: USD 140–180/bbl
• Iranian oil exports are subject to a complete embargo, which would drain another 0.5–0.75 mbpd of global crude oil supply. Alternatively, a military confrontation that affects crude oil supply via the Strait of Hormuz would be the ultimate supply shock, requiring crude oil to be rationed on a large scale.
Negative scenario
Brent 6-month target: USD 75–80/bbl
• Political tensions lead to a breakup of the Eurozone or intensify the economic contraction. At the same time, the Fed is not successful in promoting growth. Supply-wise, a restoration of Iranian exports and no supply cuts by OPEC would push oil inventories firmly up and weaken Brent prices towards USD 80/bbl.
Brent 6-month target: USD 75–80/bbl
• Political tensions lead to a breakup of the Eurozone or intensify the economic contraction. At the same time, the Fed is not successful in promoting growth. Supply-wise, a restoration of Iranian exports and no supply cuts by OPEC would push oil inventories firmly up and weaken Brent prices towards USD 80/bbl.
Petroleum demand in selected markets
Year-on-year change – in mbpd
[Bar Chart displaying data for China, Latin America, Europe, US, Japan, Middle East, Other Asia, World for 2012E and 2013E]
Year-on-year change – in mbpd
[Bar Chart displaying data for China, Latin America, Europe, US, Japan, Middle East, Other Asia, World for 2012E and 2013E]
What we're watching Why it matters
Iran tensions The biggest risk related to a potential military confrontation is an Israeli air strike on nuclear facilities in Iran. A preemptive strike could easily destabilize the region even further and threaten global crude oil supply.
Supply Changes in the US gasoline blending mandate with ethanol (made from corn) might fuel higher crude oil prices as spare capacity increases slides further. US crude oil supply progress (room to grow by 1.3 mbpd from 2011 to 2013) is a vital offsetting factor to supply outages seen in the MENA region.
Demand Most of China's demand growth seems to be related to stock building (strategic and by refineries). If this is true, the import should stay on the weak side y/y.
Oil market reports Key date: 13 Nov, IEA Oil market report
Iran tensions The biggest risk related to a potential military confrontation is an Israeli air strike on nuclear facilities in Iran. A preemptive strike could easily destabilize the region even further and threaten global crude oil supply.
Supply Changes in the US gasoline blending mandate with ethanol (made from corn) might fuel higher crude oil prices as spare capacity increases slides further. US crude oil supply progress (room to grow by 1.3 mbpd from 2011 to 2013) is a vital offsetting factor to supply outages seen in the MENA region.
Demand Most of China's demand growth seems to be related to stock building (strategic and by refineries). If this is true, the import should stay on the weak side y/y.
Oil market reports Key date: 13 Nov, IEA Oil market report
Source: UBS, as of Oct. 2012
Note: Past performance is not an indication of future returns.
Note: Past performance is not an indication of future returns.
UBS
For further information please contact CIO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com
Please see important disclaimer and disclosures at the end of the document.
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For further information please contact CIO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com
Please see important disclaimer and disclosures at the end of the document.
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