IEEJ： August 2014ｃ IEEJ 2014
○415th Regular Research Report Presentation Session

July 11, 2014

Outlook for International Oil Market(Summary)
Yoshikazu Kobayashi
Manager, Oil Group, Fossil Fuels and Electricity Unit
The Institute of Energy Economics, Japan

Outlook for international crude oil prices through 2015
1. Our outlook for international crude oil prices through 2015 indicates that prices will average $110/bbl forBrent, $108/bbl for Dubai and $105/bbl for West Texas Intermediate (WTI) in the second half (July throughDecember) of 2014 and $105/bbl for Brent, $103/bbl for Dubai and $100/bbl for WTI in the whole of 2015.
2. The above price levels could fluctuate due to various factors. Upside risk factors would include furtherdeterioration of the Iraqi situations, its impact on neighboring countries and potential inflow of speculative
money into the oil futures market under such growing geopolitical risks. Among downside risk factors would
be a recovery in Libyan oil production and exports, a further economic deceleration in China and otheremerging countries, and the continuation of faster-than-expected oil output growth in North America.

Outlook for international oil market through 2015
3. Current international crude oil prices
Prices of international crude oil benchmarks Brent and Dubai have remained historically high while growing
more stable. Since early 2014, these prices stayed very stable in a $105-110/bbl range. The other benchmark
of WTI has followed an upward trend since early this year as the U.S. economy is achieving a full recovery
and pipelines from Oklahoma's Cushing, the reference price point for WTI, have been developed. Its pricegap with Brent has narrowed to less than $10/bbl from an earlier level above $20/bbl.
4. Supply/demand fundamentals
As the world economy is expected to continue growing stably at an annual rate above 3.5% through 2015,
global oil demand is projected to steadily increase. While global oil demand in the second half of this year ispredicted to expand by 2 million B/D from the first half, a non-OPEC oil supply increase is projected to belimited to 0.8 million B/D. If OPEC maintains its output at the present level, the oil supply-demand balancemay tighten in the second half. As global demand is projected to increase by 1.4 million B/D with non-OPEC
supply expanding by 1.6 million B/D in 2015, the supply-demand balance is expected to ease again.

1IEEJ： August 2014ｃ IEEJ 2014
○5. OPEC crude oil production
OPEC crude oil production in the first five months of 2014 declined by some 0.6 million B/D from a year
earlier. The largest factor behind the decline was a stall in production and exports from oilfields in eastern
Libya amid a political dispute between the eastern and western regions of the country. Within OPEC, somecountries such as Saudi Arabia and Iraq expanded production, while falling short of covering the Libyan
output cut. Iran’s crude oil exports have gradually increased in response to the November 2013 Geneva
agreement between Iran and major nuclear powers on the Iranian nuclear program. Even if sanctions on Iranare eased in the wake of the agreement, however, a production cut caused by the past sanctions may make it
difficult for Iran to restore the production level before the sanctions over a short term. As the global oil
supply-demand balance tightens in the second half of 2014, an ongoing Libyan move to resume exports andwhether or how Saudi Arabia would expand production will attract attention.
6. Geopolitical risks
In the geopolitical arena, the largest uncertain factor is the Iraqi situation where armed clashes areintensifying between government forces and the Islamic State in Iraq and Greater Syria, a Sunni radical
militant group known as ISIS. The clashes have yet to affect oil production and exports as the government
has kept the oilfield region in southern Iraq under strict security control. As the Iraqi security situation
worsens with the domestic governance shaken, however, the Iraqi situation’s deterioration is likely to force adelay in the future expansion of oil production capacity in Iraq. The delay could affect crude oil prices over ashort term by influencing the future global oil supply-demand balance and stimulating concern over a tighter
future balance. The current deterioration of the Iraqi situation is closely linked to the situation in neighboring
Syria and represents a sectarian dispute, while the independence-seeking Kurdish autonomous government innorthern Iraq is growing more active. Therefore, the Iraqi situation is very complicated beyond Iraq’s
domestic issues. If the situation in northwestern Iraq and eastern Syria destabilizes remarkably with spillover
effects seen on neighboring countries, it may greatly affect oil production and exports in the Middle East. In
such case, international crude oil prices may hit new highs.
7. U.S. oil exports
From the United States where the shale revolution is progressing, all types of oil exports are increasing.
While petroleum products and LP gas exports increased, crude oil exports subject to approval by theDepartment of Commerce expanded to a 15-year high of 0.26 million B/D in April 2014. In June 2014, thedepartment effectively approved the export of lightly processed condensate, indicating that U.S. condensate
could flow into the Asian market. U.S. condensate exports to Asia, though still limited in volume, areexpected to contribute to lowering prices of naphtha and other light petroleum products and lead to anincrease in U.S. crude oil exports. Future U.S. condensate exports will thus attract attention.

Contact: report@tky.ieej.or.jp

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