Market Changes and World Oil Outlook - KEEI · Market Changes and World Oil Outlook by Mohammad Alipour Jeddi Head, ... Slowing pace of Russian oil supply growth Source: OPEC 0 …

1

Organization of the Petroleum Exporting CountriesOrganization of the Petroleum Exporting Countries

Market Changes and Market Changes and World Oil OutlookWorld Oil Outlook

by Mohammad Alipour Jeddi

Head, Petroleum Market Analysis Department

2005 Northeast Asia Petroleum Forum

Seoul, Republic of Korea

21-23 September 2005

2

45 years of OPEC45 years of OPEC

This year OPEC is celebrating:45 years since founding40 years in Vienna

3

OPEC’s objectives are today as valid as they were in 60’s

OPEC’s objectives are today as valid as they were in 60’s

Stable marketsReasonable pricesSteady revenues

Secure supplyFair returns to investors

Short, medium and long terms

4

Outcome of recent OPEC ConferenceOutcome of recent OPEC Conference

The 137th Ministerial Conference agreed to:

Make available to the market spare capacity of ~ 2mb/d, should it be called for, for a period of three months, starting 1 October 2005

Review market developments at its next Meeting in Kuwait on 12 December

What are the reasons behind this decision?

5

OPEC Reference Basket nominal price ($US/b)

OPEC Reference Basket nominal price ($US/b)

4

10

16

22

28

34

40

46

52

58

64

Feb-

97Ma

y-97

Aug-

97No

v-97

Feb-

98Ma

y-98

Aug-

98No

v-98

Feb-

99Ma

y-99

Aug-

99No

v-99

Feb-

00Ma

y-00

Aug-

00No

v-00

Feb-

01Ma

y-01

Aug-

01No

v-01

Feb-

02Ma

y-02

Aug-

02No

v-02

Feb-

03Ma

y-03

Aug-

03No

v-03

Feb-

04Ma

y-04

Aug-

04No

v-04

Feb-

05Ma

y-05

Aug-

05

Price Band Basket 6 Month Moving Average

Reflecting an equilibrium price range that satisfied producing countries and consuming nations.Unstable period

Unusual pricesurge signaling new episode ?

6

Current oil market assessment Current oil market assessment

Key features of the present oil market

Continued strong economic growth & high demandSupply chain tightness

•OPEC & non-OPEC oil supply •Downstream bottlenecks

Persistent price volatility: enhanced by geopolitical tensions, increasing speculative activity in Futures market Impact of Hurricane Katrina

7

Economic & oil demand growth Economic & oil demand growth

Rates of Economic Growth (real terms, at 1995 purchasing power parity)

0

1

2

3

4

5

6

7

8

9

10

OECD DCs China World

2003 2004

2005 2006

Twenty Year Average Growth Rate

8

Global Growth: In the first half of 2005 global growth was in the region of 4%. Japan grew strongly, North America also performed well but Europe continued to lag.

3Q growth began steadily but the impact of Hurricane Katrina will affect North American growth in the final quarter. High oil prices may also depress growth prospects in Europe and Asia (excluding Japan).

If the oil price is maintained at $55/b for the remainder of 2005 and 2006, the rate of growth of global GDP in 2006 might be reduced to 3.9%. This would be 0.2% below the expected 4.1% outturn for this year.

Economic outlook to 2006: World Economy

Economic outlook to 2006: World Economy

9

USA: Hurricane Katrina has lowered the forecast growth rate for 2005 to 3.4%. Lower growth in consumer spending is expected to reduce the growth rate for 2006 to 3.0%.

Japan: In the first half of 2005 GDP growth was 4.5%. The steady improvement in domestic demand should allow the growth rate for 2005 to reach 1.7% and possibly 2%. Growth of about 2% should also be achievable in 2006.

Euro-zone: First quarter growth was encouraging at 1.6% annualized but growth slowed to 1.2% in the second quarter. For the year as a whole GDP growth is unlikely to exceed 1.1%. GDP is expected to grow slightly faster at 1.5% in 2006.

Economic outlook to 2006: Major OECD

Economic outlook to 2006: Major OECD

10

Data for the first half of 2005 showed no slowdown in GDP growth in China which was 9.5%.Economically advanced regions are showing some weakness but industrial production continues to expand at about 16%. Lower GDP growth of 8.8% is expected for ‘05 with further deceleration to 8% next year as export growth may slow. Higher energy and input costs may affect profitability of over-extended companies. Chinese banking system may face some strains as economy slows Republic of Korea: Real GDP rose by only 3% in the first half of 2005 as a result of a downturn in the global IT cycle. In 2006 growth may be affected by both by higher energy costs and slower growth in the USA and China.

Economic outlook to 2006: China and Korea

Economic outlook to 2006: China and Korea

11

Economic and oil demand growth Economic and oil demand growth

Exceptionally high World GDP growth at 5.1% in 2004This lead to the highest record growth of oil demand since 1976

0.0

0.5

1.0

1.5

2.0

2.5

3.019

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

06

Dem

and

Ris

e (m

b/d)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

GD

P G

row

th (%

)

Incremental Demand Rise GDP Growth

12

Largest contributors to growth in world oil demand (mb/d)

Largest contributors to growth in world oil demand (mb/d)

-0.50.00.51.01.52.02.53.0

2000 2001 2002 2003 2004 2005 2006*

USA China Others

Last 3 years avg: 1.9



13

China has become the second largest oil consumer

China has become the second largest oil consumer

0

3

6

9

12

15

18

21

24

27

India

China

Brazil

UK USA

Oil demand, barrels per capita per year

1.50

2.50

3.50

4.50

5.50

6.50

7.50

8.50

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

%

USA: 26%China: 8%Japan: 7%South Korea 3%

China’s share in world oil consumption (%)

14

World Oil Demand Growth Forecast 2004-2006, mb/d

0.82

0.27-0.03

0.17 0.96

0.26

0.97 0.74

-0.17

0.08

0.36

0.060.35

0.65 0.03North America

OECD Pacific

ChinaOECD Europe

Developing Countries

1Q 2Q 3Q 4Q Year2004 1.9 4.0 2.7 2.8 2.82005 1.9 1.0 1.2 1.6 1.42006 1.7 1.4 1.5 1.5 1.5

y-o-y change (mb/d)

15

Non-OPEC growthyear-on-year change (mb/d)

Non-OPEC growthyear-on-year change (mb/d)

-0.7

-0.2

0.3

0.8

1.3

1.8

2003 2004 2005* 2006*-0.7

-0.2

0.3

0.8

1.3

1.8

C h i n a OECD Pacific OECD W.EuropeOECD N.America Total DCs Fsu- ex RussiaNet Non-OPEC (Supply)

Russia

Source: OPEC* Projected. Data includes OPEC NGL & non-conventionals.

16

Slowing pace of Russian oil supply growth

Source: OPEC

0

100

200

300

400

500

600

700

800

900Ja

n-04

Mar-0

4

May-

04

Jul-0

4

Sep-

04

Nov-

04

Jan-

05

Mar-0

5

May-

05

Jul-0

5

Sep-

05

Nov-

05

mb/

d

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

y-o-

y gro

wth,

%

YoY Volume change YoY % growth

17

2005: estimated production losses (mb)2005: estimated production losses (mb)

81

51

32

12

4 3 20

10

20

30

40

50

60

70

80

90

NorthSea

US Canada Mexico KZ India Ecuador

~500,000 b/d for the entire year

Could be even more…

18

Quality of non-OPEC production 2003-2006year-on-year change (mb/d)

Quality of non-OPEC production 2003-2006year-on-year change (mb/d)

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2003 2004 2005 2006

Heavy Medium Light Net Additions

Source: OPEC; Heavy <26, Medium 26-35, Light > 35

19

25.4

27.0

29.1

30.2

3.74.6

1.6

21

23

25

27

29

31

2002 2003 2004 2005*

0

1

2

3

4

5IraqOPEC-10OPEC-11 cumulative change

Note: OPEC production excludes OPEC NGL & non-conventional oil (estimated to be 4.2 mb/d in 2005).* / As of August 2005, OPEC production is assumed to be at July level of 30.2 mb/d.

Call of OPEC 28.928.3

26.9

OPEC crude oil production, 2002-2005(based on secondary sources, mb/d)

OPEC crude oil production, 2002-2005(based on secondary sources, mb/d)

OPEC response:additional supplies on the market by using the spare capacity (>4mb/d)accelerated projects to expand production capacity to meet rising demand & maintain spare capacity

20

OPEC production (mb/d) vs spare capacity (%)OPEC production (mb/d) vs spare capacity (%)

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Production Spare Capacity

Source : OPEC, 3Q based on latest OPEC production, capacity av of SS

21

OPEC capacity by country, tb/d(end 2005 to end 2006)

OPEC capacity by country, tb/d(end 2005 to end 2006)

Source: OPEC, secondary sources (Iraq 2.2)

Algeria

Indonesia

Iran

Kuwait

Libya

Nigeria

Qatar

Saudi Arabia

UAE

Venezuela

OPEC 10

Iraq

Total OPEC 11

OPEC 11 + NGLs, Con

1400

970

4170

2750

1720

2600

875

11000

2600

2900

30985

2200

32985

37195

1470

920

4280

2750

1740

2900

900

11200

2700

3000

31860

2200

34060

38630

+70

-50

+110

+20

+300

+25

+200

+100

+100

+875

+875

+1235

End 2005 End 2006 Change

22

OPEC Expansion – Crude QualityOPEC Expansion – Crude Quality

0%

20%

40%

60%

80%

100%

2004 2005 2006 2007 2008 2009

% o

f Gro

ss n

ew p

rodu

ctio

n

0

200

400

600

800

1000

1200

1400

1600

Net c

apac

ity in

crea

se m

b/d

Heavy Medium Light Net Additions (RHS)

Source: OPEC; Heavy <26, Medium 26-32, Light > 32

23

Overloading of Refining IndustryOverloading of Refining Industry

*/Asia = Japan, South Korea, China, India and Singapore. For some Asian countries May is estimated.

Shrinking Refining Spare Capacity in key refinery regions

0

1

2

3

4

5

6

7

8

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

mb/d

EU15 & Norway USA Asia*

Increasing Refinery Utilization Rate in key markets

75

80

85

90

95

100

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

%

EU15 & Norway USA Asia*

24

Refinery Capacity and Configuration in the Major Consuming Areas/Regions

Refinery Capacity and Configuration in the Major Consuming Areas/Regions

Distillation capacity in major consuming areas

10,00015,00020,00025,00030,00035,00040,00045,00050,00055,000

95 96 97 98 99 00 01 02 03 04

tb/d

10,00015,00020,00025,00030,00035,00040,00045,00050,00055,000tb/d

USA Euro-15+Norway Asia-Pacific

25

Ratio of conversion to total refinery capacityRatio of conversion to total refinery capacity

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004

USA and Canada Northern Europe Mediterranean Asia

26

Refining Capacity Expansion Projects or Plans for the Medium Term

Refining Capacity Expansion Projects or Plans for the Medium Term

Crude distillation capacity (CDU) expansion (tb/d)

0

200

400

600

800

1000

1200

1400

1600

2004 2005 2006 2007 2008 2009 2010

Capacity Increase Range (excl. OPEC est)

Sources: Capacity estimates based on published reports by different sources as well as Secretariat assessment

27

Impact of Hurricane KatrinaImpact of Hurricane Katrina

Source: MMS

28

Impact of Hurricane KatrinaImpact of Hurricane Katrina

Assessment of full impact & the recovery process in progress

Shut in production recovered from ~1.4 mb/d to 0.8 mb/d (60% of the production in the region), with a cumulative production loss of >20 mb so farCurrent gas shut-in 3.7 bcf/d (37% capacity with >100bcf) The refinery shut-down in the region peaked ~3.2 mb/d. Four refineries (860 tb/d) shut at least early 2006 & five others are running at reduced capacity, but improving fast Major regional product pipelines (e.g., colonial & plantation) back to 100% capacity; also LOOP terminal working at 75% capacity

29

Impact of hurricanes in the GoM area (mb)Impact of hurricanes in the GoM area (mb)

Source: MMS, OPEC; Ivan projected into 2005; Katrina into 2006

14

1.2

55

77

12

0

10

20

30

40

50

60

70

80

2002 2003 2004 2005

US GoM Mexico

Up to 70 mb Katrina into 2006;Could be more…

30

0.0

0.3

0.5

0.8

1.0

1.3

1.58/

29

8/30

8/31 9/1

9/2

9/3

9/4

9/5

9/6

9/7

9/8

9/9

9/10

9/11

9/12

9/13

New Orleans HoumaLafayette Lake JacksonLake Charles

GoM Production after Katrina (mb/d)GoM Production after Katrina (mb/d)

Source: MMS; OPEC projected

31

US Gulf of Mexico (GoM): Loss in production (September – December)

US Gulf of Mexico (GoM): Loss in production (September – December)

Cumulative loss (Sep-Dec):Ivan 45.4 mbKatrina (current) 45.0 mbKatrina (worst) 69.0 mb

0

100

200

300

400

500

600

700

800

900

Sept Oct Nov Dec0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Ivan (kb/d) Katrina (Forecast) kb/d

GoM Capacity (current assumption)

GoM Capacity (worst case)

32

0

0.5

1

1.5

2

2.5

3

3.5

Total AffectedRefining Capacity

Partially DamagedCapacity

Major DamagedCapacity

Katrina’s impact on the refining industry

Product market conditions after KatrinaProduct market conditions after Katrina

33

-12

-9

-6

-3

0

3

6

9

12Ja

n '0

2

Mar

'02

May

'02

Jul '

02Se

p '0

2

Nov

'02

Jan

'03

Mar

'03

May

'03

Jul '

03

Sep

'03

Nov

'03

Jan

'04

Mar

'04

May

'04

Jul '

04Se

p '0

4

Nov

'04

Jan

'05

Mar

'05

May

'05

Jul '

05

Sep

'05

(US

$/b)

Dubai Tapis Arab Heavy WTI Brent

Widening differentialsSpot differentials to OPEC Ref. Basket

Widening differentialsSpot differentials to OPEC Ref. Basket

34

US inventoriesImpact of Hurricane Katrina


Measures:

IEA SPR release for one month (the first since 1991)1.29 mb/d of crude0.69 mb/d of products

12.5 mb as loans from US SPR

Easing of gasoline & diesel specifications

Easing of shipping rules

35



IEA Stock Release by products (1000 b/d)

1000

287 317

190 176

0

200

400

600

800

1000

1200

US SPRcrude

OtherCrude

EuropeGasoline

EuropeDistillate

OtherProducts

36

Commercial oil stock levels in the USA week-ending, mb

Days of crude cover (4-wk mavg, input to refineries) Crude Oil Stocks (mbbl)

250

280

310

340

370

J F M A M J A S O N D

Avg. 00-04

2004

2005

Min-Max range: '94-'04

16

19

22

25

28



Avg. 00-04

2004

2005

37

Days of Distillates Demand Cover Distillates stocks: (week-ending, mb)

16

26

36

46

56


Avg. 00-04

20042005


80

100

120

140

160


Avg. 00-0420042005


US distillate stocks & demand cover

38

US gasoline stocks & demand cover

Days of Gasoline Demand CoverGasoline stocks: week-ending (mb)

19

23

27

31

35



Avg. 00-04

2004

2005

180

195

210

225

240



Avg. 00-042004

2005

39



Implication:Crude supply in therefore not the problem

There could even be an over crude supply:The full 30 mb US SPR crude release will probably not take placeUS refiners might end up importing less crude

Distillate stocks should still manageable, but if the weather turns out to be cold and natural gas prices move higher, this could increase concern for the winter season.

On gasoline side, if refining capacity losses are prolonged significant shortages in gasoline can be expected. However if demand is reduced more than expected, the impact of this shortage will be less.

40

OECD commercial oil stocks closing levels, mb

Crude Products

1080

1130

1180

1230

1280

1330

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Avg. 00-04

20042005

1200

1275

1350

1425

1500

1575

Jan

Feb

Mar Ap

r

May

Jun

Jul

Aug

Sep Oct

Nov

Dec

2005 2004

Avg. 00-04

41

Traditional inverse price/stock relationTraditional inverse price/stock relation

2100

2200

2300

2400

2500

2600

2700

2800

2900

Jan-94

Jul-94

Jan-95

Jul-95

Jan-96

Jul-96

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

mb

0

10

20

30

40

50

60

70

US$

/b

OECD Commercial Stocks WTI

Prices/stocks begin to move in parallel

42

WTI prices vs. US crude commercial oil stocks

R2 = 0.69

0

10

20

30

40

50

60

70

255 270 285 300 315 330 345 360

1994 - 2003 2004Jan 2005 - August 2005 Linear (1994 - 2003)

(US

$/b)

(million barrels)

Recent observed stocks-price relationship does not fit into historical trendUS stocks doesn't support current higher oil price

Increasing activity in the Futures market Increasing activity in the Futures market

43

Growing use of oil futures as a form of financial instrument

Growing use of oil futures as a form of financial instrument

WTI futures contracts at NYMEX (million bbls)

0

100

200

300

400

500

600

700

800

900

2003 2004 20050

50

100

150

200

250

300

NYMEX volume traded OPEN interest (outstanding)NYMEX volume traded: cum. chg. OPEN interest (outstanding): cum. chg.

growing use of oil futures as a form of financial instrumentNYMEX hit a record high in 2005 surpassing the record in 2004.The average volume of contracts rose in 2005 to 237 million contracts compared to 179 million contracts in 2003OPEN interest also shows a higher record in 2005 of 792 million contracts compared to 542 million contracts in 2003

WTI futures contract at NYMEX million barrels

2003 2004 2005

Nymex volume traded 179 210 237

OPEC Interest 542 689 792

44

Increasing activity in the Futures market Increasing activity in the Futures market

R2= 0.78

10

20

30

40

50

60

70

80

100 150 200 250 300 350

US

$/b

NYMEX daily average volume

NYMEX daily oil average volume traded vs. price

R2= 0.84

10

20

30

40

50

60

70

80

300 500 700 900 1100

US

$/b

Open interest (futures)

Nymex open interest (futures) vs. WTI price

45

0

20

40

60

80

100Ja

n-80

Jan-

81Ja

n-82

Jan-

83Ja

n-84

Jan-

85Ja

n-86

Jan-

87Ja

n-88

Jan-

89Ja

n-90

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05

0

20

40

60

80

100Average Nominal Real**/ inflation & exchange-rate adjusted.(Base: August 2005=100, US$/b)

The price of oil: distinguishing between nominal and real, (US$/b)

The price of oil: distinguishing between nominal and real, (US$/b)

Searching for new price level to mobilize sufficient investments following the global restructuring, with stronger demand to continue from emerging DC & compensate for delay in investment, downstreamMost likely above the 2000 -2003 price band level (average 33$) i.e. > above $40/b and below current levels not supported by fundamentals

?

46

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

United Kingdom

Italy

Germany

France

Japan

Canada

USA

Crude CIF Price Industry Margin Tax

Who gets what from a liter of oil in the G7?2004

Oil taxes & export revenues: who gets what?

47

Avg 2000-04 and 2004

254

324349

312

0

100

200

300

400

Bill

ion

US$

G7 Oil Taxes Revenue OPEC Oil Export Revenue

(2000-04) 2004 (2000-04) 2004

Oil taxes & export revenues: who gets what?

48

Revenues of major international oil companies*Revenues of major international oil companies*

603

805 752 806

977

1,232

0

250

500

750

1,000

1,250

1,500

1999 2000 2001 2002 2003 2004 2005#-30

-15

0

15

30

45

60Revenues % change in revenues % change in ORB price

(billion US$) (%)

* which constituted ~39% of the total oil companies' revenues in 2003, and 55% of the revenues if the NOCs (>50% state-owned) are excluded.

# 1st half 2005.

49

OPEC Crude, Production and Requirements in the Short term

OPEC Crude, Production and Requirements in the Short term

27,000

28,000

29,000

30,000

31,000

32,000

33,000

34,000

35,000

4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06

OPEC 10 Capacity Iraq @ 2 mb/dOPEC 11 Production, Av. SS Call on OPEC

50

Comparison of profits vs investments of major international oil companies* (1989 - 2004)

Comparison of profits vs investments of major international oil companies* (1989 - 2004)

0

10

20

30

40

50

60

70

Upstreamprofits

Upstreaminvestments

Downstreamprofits

Downstreaminvestments

1989 2004

(Billion US$)

*/ It includes ExxonMobil, BP, Shell, ChevronTexaco, Total.

Upstream Downstream Upstream Downstream

Change (bn US$) 52 19 19 2 Ratio of downstream to total (%) 74 26 91 9 Ratio of investments to profits (%) 36 10

investmentsprofitsComparison of profits vs investments over the 1989-2004 period

51

Expected cumulative growth in OPEC capacity,non-OPEC supply and refinery capacity

Expected cumulative growth in OPEC capacity,non-OPEC supply and refinery capacity

0

2000

4000

6000

8000

10000

12000

2004

2005

2006

2007

2008

2009

mb/d

0

2000

4000

6000

8000

10000

12000

Non-OPEC OPEC CapacityRefinery Capacity

52

Impact of Higher Oil PricesImpact of Higher Oil Prices

The year-to-date OPEC Reference Basket price for 2005 has risen by about $5/bl or 10% since last May.

The impact on OECD economies in 2006 of such a 10% increase will be in the region of between 0.1-0.15%.

DCs may also see growth reduced by a similar amount on average but the impact on poorest countries with high shares of oil imports in GDP may be 0.3-0.4%

53

Impact of Higher Oil PricesImpact of Higher Oil Prices

Many governments in Asia have implemented policies to reduce fuel subsidies. Cuts in subsidies is likely reduce consumer spending and growth in many DCs

Oil exporters will benefit from higher prices, as will their trading partners as the oil revenues are recycled. OPEC imports rose by $70/b in 2004 with a much larger increase expected this year.

Overall impact on 2006 world economic growth of a 10% price increase will be about 0.15%

54

Oil market outlookOil market outlook

During 2004 and in the first 3Q of 2005, fundamental factors both in upstream and downstream sectors were major contributors to higher oil prices.

Supply fears and consequent speculative buying magnified price movements on the upside.

The current consensus is that in the near term there is no significant shift in the supply/demand balance, particularly in the downstream sector; hence, no major change in prices is expected.

55


World oil demand in the coming quarter is expected to reach a record high level approaching 86 mb/d. The call on OPEC crude at 30.4 mb/d will leave a lower level of spare capacity.

The bulk of new refinery capacity will be in the Far East and Middle East, rather than in Europe and the USA.

This places the USA at an even greater risk of supply disruption as the volume of imports become a greater percentage of the products supply

56


Looking further ahead, we expect some deceleration of the World GDP growth rate due to cyclical patterns as well as the impact of higher oil prices. In 2006, this is likely to be about 0.5-0.6%.

Supply constraint will ease slightly in 2006. A question remains on the behaviour of demand.

An industry survey before Katrina showed projections for WTI crude at $56/b in 4Q05, declining to $50/b in 2006.

Given the healthy situation in crude oil stocks, combined with the release of SPR, crude developments are not expected to push prices higher. However, the tight product situation will be the main driver of the market.

57

Enhancing OPEC-Northeast Asia relationship

OPEC-Northeast AsiaOPEC-Northeast Asia

58

World energy demand by fuel type (mtoe)World energy demand by fuel type (mtoe)

0

1000

2000

3000

4000

5000

6000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Oil

Coal

Hydro/nuclear/renewable

Gas

2000-2010

2010-2020

2020-2025 2000 2025

Oil 1.6 1.8 1.7 40.1 36.9Solids 1.9 2.0 1.8 26.0 25.2Gas 2.9 3.1 3.2 23.3 29.9Hydro/Nucl./Ren. 1.1 0.8 0.7 10.6 8.0Total 1.9 2.1 2.0 100.0 100.0

Growth (% pa) Fuel Shares (%)

59

0.0

0.2

0.4

0.6

0.8

1.0

1.2

OECD DCs Transition economies

Asia

OPEC & other exp.

N. America

W. EuropeOECD Pac.

Africa & M.E.Latin America.

FSUother

Annual growth in oil demand, 2004-2025,Reference, mb/d pa

Annual growth in oil demand, 2004-2025,Reference, mb/d pa

Asia: 66% of DCs increase, especially China & India huge potential (e.g. low vehicle ownership)But possible constraints: infrastructure, policies

ChinaWorld Asia China

GDP Growth (%) 3.5 4.7 6.2Oil Demand Growth (%) 1.6 2.7 4.1Oil Demand Growth (mb/d) 1.5 0.96 0.37

2004-2025

60

Vehicle intensities 1970-2025Vehicle intensities 1970-2025

0.1

1

10

100

1000

100 1000 10000 100000GDP per capita ($95)

vehi

cles

per

1,0

00

China

S. AsiaOther DCs

transition economies OECD

0 100 200 300 400 500 600 700 800

USA

Japan

UK

Malaysia

Brazil

South Africa

Ukraine

Algeria

Egypt

Indonesia

China

Pakistan

Vehicle ownership per 1000

India: 10 China: 16

61

0

50

100

150

200

250

300

350

400

450

2010 2015 2020 2025

$(20

03) b

illion

$70-95bn

$122-173bn

$185-269bn

$258-382bn

Cumulative OPEC investment requirements:Huge uncertainties in future oil demand translate into huge

uncertainties and risks for future OPEC investment

Cumulative OPEC investment requirements:Huge uncertainties in future oil demand translate into huge

uncertainties and risks for future OPEC investment

If OPEC balances the market, the uncertain volume requirements translate into huge ranges of anticipated capital outlay needs

Already by 2010 an estimated uncertainty of $25 billion exists between the reference case and the low economic growth caseA unit of investment in OPEC country on average produce it 4X the additional capacity compared to non-OPEC.

Impact of lower economic growth

62

23

31

39

32

23

16

0

10

20

30

40

2005 2015 2025Oil demand Oil import requirements

Asiamb/d

7

-26

-34

-47

9

-50

-40

-30

-20

-10

0

10

2005 2015 2025Oil demand Oil import requirements

OPEC mb/d 10

(mb/d)2005 2015 2025 2005 2015 2025

North America 26 28 29 11 13 14Latin America 5 6 7 0 0 1Europe 16 16 17 10 12 13FSU 4 4 5 -8 -10 -10Asia 23 31 39 16 23 32 China 7 11 14 3 7 11M.East & Africa 3 4 5 -3 -3 -2OPEC 7 9 10 -26 -34 -47

Oil Demand Net Oil Import Req.

Regional oil demand & net import requirements(mb/d)

Regional oil demand & net import requirements(mb/d)

M.East OPEC contribution to world oil trade is expected to increase from ~30% to ~40% in 2025.

63

OPEC Middle East & China TradeOPEC Middle East & China Trade

0

100

200

300

400

500

600

700

800

900

1000

2000 2001 2002 2003 2004 2005*

China: crude oil Imports from Middle East (1000 b/d)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2,054 2,229 2,477 3,805 7,526

OPEC Middle East: Imports from China(Mill. US $)

64

OPEC Middle East & Japan TradeOPEC Middle East & Japan Trade

2900

3000

3100

3200

3300

3400

3500

3600

3700

2000 2001 2002 2003 2004 2005*

Japan: crude oil Imports from Middle East (1000 b/d)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2000 2001 2002 2003 2004

OPEC Middle East: Imports from Japan(Mill. US $)

65

OPEC Middle East & Rep. of Korea TradeOPEC Middle East & Rep. of Korea Trade

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2000 2001 2002 2003 2004 2005*

South Korea: crude oil Imports from Middle East (1000 b/d)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2000 2001 2002 2003 2004

OPEC Middle East: Imports from South Korea(Mill. US $)

66

Dialogue, partnership and cooperationDialogue, partnership and cooperation

Growing interdependency and enhancement of security of supply for the consumer and security of demand for producers.

OPEC has made substantial investments in the upstream. Positive prospects for Asian investment in OPEC producers

To enhance relations, some OPEC Member Countries have made investments in the downstream sector of some major consumers, such as Korea and China, in addition to other countries.

The future will provide more space for richer ties and deeper partnership between OPEC and Northeast Asian countries.

67

68

World oil demand & supply balance(mb/d)

World oil demand & supply balance(mb/d)

1Q05 2Q05 3Q05 4Q05 2005 05/04 1Q06 2Q06 3Q06 4Q06 2006 06/05

Demand (a) 83.6 82.0 83.0 85.3 83.5 1.4 85.3 83.4 84.4 86.9 85.0 1.5

Supply 83.9 84.6 84.5 85.2 84.6 1.7 Non-OPEC (b) 50.3 50.5 50.1 50.8 50.4 0.6 51.1 50.9 51.2 52.7 51.5 1.1 OPEC NGL (c) 4.1 4.2 4.2 4.3 4.2 0.2 4.4 4.5 4.6 4.7 4.5 0.3 OPEC Crude oil 29.5 29.9 30.2 30.2 30.0 0.9

a-(b+c) 29.2 27.3 28.7 30.3 28.9 0.6 29.8 28.0 28.7 29.5 29.0 0.1

Balance (d) 0.3 2.6 1.5 -0.1 1.1

Seasonal stock chg.: ('00-'04) -0.7 0.9 0.3 -0.6 -0.7 0.9 0.3 -0.6Stock change (e) OECD commercial -0.1 1.1 OECD SPR 0.1 0.1 Oil in Water 0.2 0.0Remaining to Balance (d-e) 0.0 1.4

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