We use this 'In Focus' to identify and analyse 10 themes that we believe will shape the oil world in 2015
OPEC policy: The sea change
The perception of a loss of the ‘OPEC feedback' mechanism means the market will become more prone to undershooting and overshooting-so sharp movements in oil prices may become more frequent. This will have significant negative impacts on the investment environment, and hence on the long term stability of the market.
The axe in Capex: Decline and fall
Lower Capex has broad implications such as lower costs over time, but it also means project delays and cancellations. The ramp-up of conventional projects that came online in 2014 will support through H1 15 but the project pipeline for 2015 is already slim at 1.3 mb/d (vs. 2.5 mb/d in 2014) which will start biting from 2016.
Venezuela is on the brink of a sovereign default and is almost certain to make headlines this year. However, a number of MENA countries such as Libya, Iraq and Iran are also at risk. Even Saudi Arabia and wealthy neighbouring GCC states will have to consider spending cuts and draw on reserve funds.
Russia: Les Miserables
2015 will be a challenging year for Russia as sanctions and lower oil prices impact an already weak economy. Upstream projects will be impacted (we forecast a 0.1 mb/d decline) and 2016-2017 projects also face delays. Despite these problems, President Putin is unlikely to face much in the way of serious domestic opposition.
China: Bleak house
The Chinese government's move to rebalance the economy and implement an aggressive environmental agenda will mean oil consumption will become more efficient. Growth in both diesel and gasoline is expected to ease, although appetite for crude continues to grow as SPR and commercial storage units are built.
Asian subsidy reforms: Great expectations
2015 will be a year of reform and rebalancing in Southeast Asia, with countries such as Indonesia reducing energy subsidies that have proved increasingly expensive. With oil prices depressed, now is the perfect time to cut subsidies, but this will likely depress Indonesian fuel demand in the short term.
Global refining and margins: Dead souls
The slowdown in CDU capacity additions is led by Chinese oil refinery growth, which eases to 0.2 mb/d, and will support East of Suez markets to some extent. In the Atlantic basin capacity additions are focussed on the US although LatAm imports will fall as domestic capacity rises which will challenge US refineries.
US crude imports: No country for old men
In 2014 higher refinery runs were able to absorb domestic production. This year however, imports must lead and LatAm is most likely to feel the heat. Brazilian and Colombian crude imports will fall, with both countries adding refining capacity. Mexican and Venezuelan heavies are also forecast to fall further on our estimates.
Light-heavy differentials: Gravity's rainbow
The glut of light crude in the Atlantic basin may take some time to clear whilst exports of naphtha and other NGL components will weigh on gasoline. Meanwhile, new Middle Eastern refining capacity will pressure Asian refining margins making it difficult for West African barrels to arb east. Thus Brent will remain under pressure.
Propane: The unbearable lightness of being
Export markets represent an outlet for US LPGs to be sent to Asia, depressing naphtha values and thus leading to a generally softer light ends complex. However, low prices have led to a switch away from wet gas plays into dry gas areas which has the potential to tighten markets by reducing production of NGLs in the US.