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Oil Market Dynamics: The Shift in Power from Consumers to Producers Amid Rising Prices

This project explores the significant changes within the global oil market, highlighted by rising prices and shifting power dynamics between consumers and producers. In 2008, OPEC producer earnings surged to $1.251 trillion, reflecting the consequences of elevated oil prices. The demand for oil continues to outstrip production capacity, contributing to economic instability and geopolitical tensions. Factors such as institutional investment and currency fluctuations further influence oil prices, underscoring the complex nature of energy economics. This analysis provides insights into the resilience of global oil demand amid unprecedented challenges.

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Oil Market Dynamics: The Shift in Power from Consumers to Producers Amid Rising Prices

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Presentation Transcript

  1. Project ‘Minyak’ Warren Leow

  2. In Perspective $113/bbl 1998: $12.21 “85m barrels of oil a day is all the world can produce, and the demand is 87m,” Boones Pickens, May 2008

  3. Impact • OPEC producer earnings to reach $1.251 trillion in 2008 (from $671b in 2007) • Growth of Sovereign Wealth Funds • Exxon- $40b annual profit • Fuel/Food riots

  4. Geo-Political Risks Iraq Iran Venezuela Nigeria Declining Output Russia Mexico United Kingdom Norway

  5. Cost Inflation

  6. 2007 Production

  7. Price Inelasticity • Global oil demand remains relatively resilient despite high prices. • Much of the growth will come from markets with regulated prices that insulate consumers from record high oil prices. • E.G. China, India, Indonesia, Malaysia

  8. “[T]here’s no news of a pipe bursting in Nigeria,” “There’s no news of a facility being … attacked in Iraq. We don’t know why it’s up and that’s the point. What is causing oil to go up and down?” • Lehman Brothers said for every $100 million in new inflows by institutional investors, the price of West Texas Intermediate increased by 1.6%. • Late July, CFTC re-classified one large unidentified commercial hedger as a speculator- raising NYMEX open interest from 38% to 49%. • Since July 3rd, commodities have tumbled 21% on average.

  9. SemGroup, July 2008 - $3b • Amaranth, fall 2006 - $6b • BP, Shell, Total, Lukoil • Glencore, Vitol, Trafigura • Goldman Sachs, Morgan Stanley, Barcaps

  10. Crude oil is the new gold. • Weak USD has turned oil into the "new gold," to hedge against inflation and mitigate losses during equity & credit market downturns. • Prices of commodities quoted in USD are inversely related to USD movements • With the USD strengthening, oil has been falling.

  11. Conclusion • Power shifts from Oil consumers to producers • Negative impact in ST due to lagged effect • Economic planning becomes difficult

  12. High oil prices is the solution

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