TOTAL is one of the world’s largest traders of crude oil and refined products on the basis of volumes traded. Trading of physical volumes of crude oil and refined products amounted to 4.9 Mb / d in 2014.
The table below sets forth selected information for each of the past three years with respect to Trading’s worldwide crude oil sales and supply sources, and refined products sales.
Trading’s crude oil sales and supply and refined products sales (a)
Trading operates extensively on physical and derivatives markets, both organized and over the counter. In connection with its trading activities, TOTAL, like most other oil companies, uses derivative energy instruments (futures, forwards, swaps and options) to adjust its exposure to fluctuations in the price of crude oil and refined products. These transactions are entered into with various counterparties.
For additional information concerning derivatives transactions by Trading & Shipping, see Note 30) "Financial instruments related to commodity contracts" and Note 31) "Market risks" to the Consolidated Financial Statements (Chapter "Consolidated Financial Statements", point "Notes to the Consolidated Financial Statements").
All of TOTAL’s trading activities are subject to strict internal controls and trading limits
In 2014, the activities of Trading were affected by the economic environment and the world oil market situation as described below.
The increasing surplus supply in the world oil market led to a steady drop in prices from mid-year, decreasing by more than 40% by the end of December. The surplus caused crude prices to flip from backwardation(1) in the first half of the year to contango thereafter. The surplus resulted from continued strong growth in North American oil production in 2014, which substantially outstripped weak growth in global oil demand. North America accelerated the construction of infrastructure (pipelines and rail networks) to move rising supply from the center of the continent and the southwest of Texas to refineries located on the American coast of the Gulf of Mexico and the east coast of the United States.
In a less favorable world economic context, the growth in world demand for oil slowed from +1.2 Mb / d(2) in 2013 to +0.5 Mb / d(2) in 2014, due notably to slower growth in natural gas liquids (NGL) demand in the United States and slower growth in demand for gasoil east of the Suez and in Europe, as well as the slowdown in the growth in demand for gasoline in the United States and the Middle East. Demand for fuel oil continued its decline both in onshore uses and in marine bunkers. The wave of extreme cold that gripped North America in the first quarter of 2014 stimulated demand for heating oil but depressed demand for other products (notably NGL) as the cold-snap slowed economic activity. In Europe, the mild temperatures recorded in the first quarter of 2014 decreased heating oil consumption. The slowdown in economic activity and the drop in coal mining and related transportation of coal led to a decline in the use of diesel in China. In the Middle East, diesel and gasoline consumption fell as the conflict in northern Iraq interrupted supply to local consumers.
Estimated global oil supply increased to +1.6 Mb / d in 2014 compared to +0.6 Mb / d in 2013. Non-OPEC production grew by approximately +1.9 Mb / d, with an increase of +1.6 Mb / d in North America (United States, Canada and Mexico), +0.2 Mb / d in Latin America, and +0.1 Mb / d in the North Sea. In the other regions, production either declined or stagnated. Overall OPEC crude oil production continued to contract (-0.3 Mb / d compared with -1.0 Mb / d in 2013), as the losses recorded in Libya and Iraq were not offset by the increases generated in other member countries. During most of the year, crude oil production capacity of approximately 2.5 Mb / d was rendered unavailable in several OPEC and non-OPEC countries by political tensions, conflicts and sanctions imposed on certain countries. Saudi production, at approximately 9.6 Mb / d, was stable in 2014 compared to 2013.
As supply growth greatly exceeded demand growth in 2014, surplus supply vis-à-vis demand increased to reach approximately +1.0 Mb / d versus +0.1 Mb / d in 2013. This imbalance contributed to the fall in prices in the second half of the year.
In the first half of the year, prompt prices for Brent ICE (1st line) fluctuated primarily between $105 / b and $110 / b, peaking at $115.1 / b in mid-June and averaging around $109 / b. Subsequently, Brent ICE prices fell steadily, reaching $57.3 / b on December 31 and this drop continued in January 2015 before climbing back to $60 / b in February. As prices declined, the ICE Brent price structure flipped from backwardation to contango, supporting commercial storage of crude and better refinery margins in the second half of 2014.
The continuing development of rail and pipeline infrastructure in the United States to move the increasing supply surplus from the mid-continent to refineries on the coasts contributed to a marked contraction in the price spread between WTI and Brent in 2014 (from -$10.7 / b in 2013 to -$6.5 / b in 2014). In 2014, the launch between January and April of the Marketlink pipeline connecting Cushing (Oklahoma) to the Gulf of Mexico in Texas and the commissioning in the third and fourth quarters of other pipelines in the Permian region in west Texas to the Gulf of Mexico helped restore balance to the crude market in the center of the United States. WTI was discounted by only -$3.9 / b vs. Brent in the fourth quarter of 2014.
While global refining capacity grew by approximately +1.3 Mb / d in 2014, estimated crude throughputs increased by only about +0.6 Mb / d, held back by the slowdown in demand growth and weaker refining margins outside of North America in the first half of the year. Margins increased with the flip in crude oil prices to contango, leading to a slight growth in throughputs in the second half of 2014 compared to 2013. Most new refining capacity was concentrated in China (+0.9 Mb / d) and the Middle East (+0.5 Mb / d). Structurally robust, refining margins in the United States pushed local refineries to maximize their throughputs to reach exceptionally high operating rates, which supported a high level of diesel exports. The ICE gasoil premium to Brent in northwest Europe began the year at a sustained level due to the wave of extreme cold in North America, but then deteriorated considerably in mid-year due to the weakness in demand and substantial international supply. It closed the year much stronger as demand improved late in the year while refinery
maintenance tightened supply.
(1) Backwardation is a term used to describe an energy market in which the value of the spot, or prompt, price is higher than the value of the forward or futures contracts trading concurrently. The reverse situation is referred to as contango.
(2) TOTAL estimates.