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Global Oil Market James L. Williams WTRG Economics

Global Oil Market James L. Williams WTRG Economics. Oklahoma State University February 22-23, 2010 Stillwater, Oklahoma Tulsa, Oklahoma. Oil Price - It’s not Econ 101 Price = f ( Supply, Demand ) Price = f ( Myth, Perception, Reality ) Price = f (Conspiracies, Politics, OPEC)

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Global Oil Market James L. Williams WTRG Economics

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  1. Global Oil MarketJames L. WilliamsWTRG Economics Oklahoma State UniversityFebruary 22-23, 2010Stillwater, Oklahoma Tulsa, Oklahoma

  2. Oil Price - It’s not Econ 101 • Price = f ( Supply, Demand ) • Price = f ( Myth, Perception, Reality ) • Price = f (Conspiracies, Politics, OPEC) • None of the above • All of the above Our goal is to know what is knowable and to identify the major uncertainties.

  3. U.S. Petroleum Consumption 12 Year Low -10% -10%

  4. Slow Recovery from 1978 – 1983 Drop 20 years -6% -19%

  5. Residential Sector Never Recovers 1978 – 1983 Drop 20 years -6% -19%

  6. Commercial Sector Never Recovers 1978 – 1983 Drop 20 years -6% -19%

  7. Power Sector Never Recovers 1978 – 1983 Drop 20 years -6% -19%

  8. Industrial Sector Eventually Recovers 1978 – 1983 Drop 20 years -6% -19%

  9. Transportation Sector Recovers Quickly from 1978 – 1983 Drop and Peaks before the Current Recession -6% -19%

  10. Consumption • Lessons from the 1970s • First Price Spike: 1973 Embargo • Short-term drop in consumption • More efficient autos (5 year delay) • Better home insulation • Fuel switching - natural gas, nuclear • Second Price Spike: Iranian Revolution & Iraq Invades Iran 1978-1980 • Long-term effects from 1973 combine with reaction to new price increase • US consumption drops 19% • Returns to 1978 level 20 years later.

  11. World - Consumption

  12. OECD - Consumption

  13. Non OECD - Consumption

  14. China - Consumption

  15. India - Consumption

  16. Asia Ex. China, India & Japan

  17. U.S. Rotary Rig Count

  18. U.S. Rotary Rig Count & Revenue

  19. U.S. Rotary Rig Count - Oil

  20. U.S. Rotary Rig Count - Gas

  21. U.S. Rotary Rig Count - Horizontal

  22. International Rotary Rig Count - Oil

  23. OPEC Rotary Rig Count

  24. World Oil Production

  25. Non OPEC Oil Production

  26. Russia & USSR Oil Production

  27. Non OPEC Declines in Oil Production

  28. Non OPEC Gains Oil Production

  29. OPEC Oil Production

  30. Iraq, Iran, Kuwait & Nigeria Oil Production

  31. Saudi Swing Producer

  32. Venezuela - Chavez under threat?

  33. Rules for Oil Price • Forecasting • Never mention a price & a date in the same talk. • If you can’t forecast well forecast often. • If you are ever lucky enough to get it right, don’t let anyone forget it

  34. Supply Interruption Price Risk

  35. Price Risk – Recession

  36. Inventory / Consumption

  37. Demand for Futures Contracts Greater Impact Than Physical Demand?

  38. Demand for Futures Contracts Greater Impact Than Physical Demand?

  39. Futures Price and Stocks at Cushing, OK

  40. Demand for Futures Contracts Greater Impact Than Physical Demand Downside Risk Index funds, ETFs and swap dealers have been often been exempt from limits on number of contracts they can hold. End of September futures and options held by this group represented the equivalent of 1/2 of all NYMEX contracts. They are net long (buyers) and the equivalent of 1/3 of all futures contracts. This increased demand for futures (not physical oil) has increased the futures price. The futures price impacts the spot or cash price.

  41. Politics, Geopolitics & Nature • Supply Interruptions • Wars • Natural disasters • Consumer Policies • Taxes – Transportation, Carbon • CAFÉ – More Efficient Auto Law • Import duties / restrictions • Price controls • Producer / OPEC Policies • Quotas • Embargos • Taxes • Royalty rates

  42. OPEC Production Risk • Production Quotas • Saudi Arabia / Yemen • Venezuela • Embargo Unlikely • Revolution Possible? • Nigeria • Niger Delta / MEND • Iraq +2 million??? • Iran • Psychological • Israel Attacks?

  43. OPEC Concerns * OECD economy * Asian economy * Strength of the dollar * Non-OPEC production gains * Fuel switching o Natural Gas o Nuclear o Biofuels o Coal to liquids o Gas to liquids * Taxes on petroleum products * Carbon Tax * Expansion of public transportation * Efficiency * Increased oil & gas exploration * Higher taxes on petroleum

  44. Consuming Nations • Consumer concerns • * Global warming • * Peak oil • * Security of Supply • Economic • Military • * Supply interruption • OPEC member • Hurricane • * Dependence • * World economy • Consumer responses • * Fuel switching • * Natural gas • * Nuclear • * Biofuels • * Coal to liquids • * Natural gas to liquids • * Improved Storage Device • * Batteries • * Natural gas • * Taxes on petroleum products • * Expansion - public transportation • * Efficiency • * Increased oil & gas exploration

  45. UpsideSaudi Arabia / YemenVenezuelaNigeriaIraqIranHurricanesOPEC production cutRefineriesDownsideU.S. RecessionEuropean RecessionAsian growthMore OPEC CapacityMore non-OPEC CapacityFuel SwitchingEfficiency Risks for 2010

  46. Better batteryGas to liquidsCoal to liquidsOil from algaeNuclearSolar generationWind generationTidal generationGeothermalPetrol powered cars lose share to electric and natural gas DesuburbanizationSmaller homesPassive solar heating & cooling homes & buildingsMore efficient everything 2015 - 2025

  47. Natural Gas

  48. Natural Gas • Gás natural

  49. Contact InformationJames L. WilliamsWTRG EconomicsP.O. Box 250 London, Arkansas 72847Phone: 479-293-4081Email: wtrg@wtrg.comWebsite: www.wtrg.com

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