Macroeconomic outlook

The global economy entered into recession in the second half of 2008, and signs of a cyclical downturn in the real economy were evident at the beginning of the year, led by falling housing prices in the USA and several European countries. The downturn was reinforced by the financial crisis that escalated in September. A vast deleveraging in both the household and corporate sectors will lead to slowing growth rates in consumer spending and investments in all regions.

Global GDP growth is currently expected to be negative in 2009. Within two to three years we expect global growth to return to the long-term trend, within the range of 2.5 to 4%. The impact of the policy measures and government stimulus packages is unknown and the intended positive effects therefore represent considerable uncertainty for these forecasts.

Crude oil price developments

Dated Brent started 2008 on a strong upward trend continuing from 2007, and it accelerated as financial investors increased positions in search of more favourable yields. Strong support from a tight gasoil/diesel market and declining crude oil inventories led to an increasingly tight oil market, and Brent dated reached a record high of USD 144/bbl in July 2008.

At this point, an underlying tendency of slower global GDP growth and weakening product demand started to discourage investors. With a shift of both sentiment and outlook during 2008, crude oil prices were fundamentally different from the first half year to the second and traded at between USD 33 and 40/bbl in December. Brent dated averaged USD 97.26 per barrel in 2008. The gas, power and EU ETS (Emission Trading Scheme) prices have broadly followed oil prices throughout 2008.

With the global economy deteriorating, the energy markets are expected to stay relatively weak in 2009 and possibly into 2010 and 2011. Over time, as the macroeconomic situation improves, energy demand is expected to pick up and energy prices are expected to rise.

High cost environment

In recent years, the oil industry has focused largely on growing production and the resource base. As energy prices soared and the competition for resources intensified, the cost of building new production capacity increased steeply. The tightening of the supplier market intensified the cost push. With reduced oil demand and falling oil prices, this high cost environment is not seen as sustainable. If the oil price remains at current low levels, we expect costs to be reduced in the time ahead.