A Supply and Demand Story By James Engel Oil 101 A Supply and Demand Story By James Engel

What is Oil? Liquid chemical with a variety of uses - most importantly fuel in the form of gasoline, LPG, ethane, diesel fuel ect. Created by organic material decaying billions of years ago and being compressed underground. Massive installations built to get it out of the ground and into your car.

Factors that Affect Price: Supply: How much people can produce oil. Demand: How much people want/need oil (a lot). Supply Speculation: How much people think people can produce oil in the future. Demand Speculation: How much people think people want/need oil in the future. The oil market is very speculative.

Factors that Affect Price: Also some algorithm weirdness occasionally:

Brief History of Oil Markets/How we got here In the late 1800s, people suddenly need oil. The company that capitalized on this and monopolized oil was John D. Rockefeller’s Standard Oil.

Brief History of Oil Markets/How we got here This was very bad and the company was broken up into several, smaller companies that later merged.

Brief History of Oil Markets/How we got here Other countries want to play the oil game, and once they get independance four middle eastern countries formed the Organization of Petroleum Exporting Nations, or OPEC.

Brief History of Oil Markets/How we got here

Brief History of Oil Markets/How we got here In 1973 in response to the Yom Kippur War, OPEC (then OAPEC) embargoed numerous countries including the US, causing the price of oil to increase over 400%. Other spikes occurred during the Iranian Revolution and Iraqi invasion of Kuwait. Realizing the power of production cutbacks, OPEC...

Brief History of Oil Markets/How we got here Began cutting production

Brief History of Oil Markets/How we got here OPEC countries, particularly in the Persian Gulf where it was the cheapest to produce oil, became incredibly rich while consumers suffered.

Brief History of Oil Markets/How we got here OPEC countries, particularly in the Persian Gulf where it was the cheapest to produce oil, became incredibly rich while consumers suffered.

Brief History of Oil Markets/How we got here OPEC countries, particularly in the Persian Gulf where it was the cheapest to produce oil, became incredibly rich while consumers suffered.

Peak Oil Also known as “Peak Oil Supply,” King M. Hubert’s theory that eventually the world would use up all its oil reserves and production would stop, causing prices to skyrocket.

Peak Oil …? Kind of correct, but Hubert didn’t count on one thing - shale. Shale oil is produced by Fracking - Injecting high pressure liquid into subterranean rocks in order to release oil within. Production has spiked in the last decade, keeping supply up.

OPEC’s Response to Shale Imagine: your OPEC and you can produce tons of cheap oil, but shale companies are encroaching on your share of the global oil market. What do you do?

OPEC’s Response to Shale Imagine: your OPEC and you can produce tons of cheap oil, but shale companies are encroaching on your share of the global oil market. What do you do? Increase Production!

Production Increases OPEC stops all cuts and kicks production into overdrive, in some cases even extract oil at a loss (producing it costs more than the sale price). Supply Increases ==> Prices Collapse ==> Shale companies can’t profit ==> Shale goes out of business Or at least that was the idea...

The increase didn’t work, OPEC gave up

That Brings us to Today’s Status Quo Whenever oil prices get too high, shale companies pump up production, increasing supply and pushing the price down. Whenever oil prices get too low, OPEC cuts production more and supply decreases, pushing price up. Occasionally changes occur due to political uncertainty in the Middle East.

But wait - Peak Oil is Back! But this time, it’s peak oil DEMAND, not Supply.

Peak Oil 2: Electric Boogaloo The rate at which oil consumption increases has been losing steam, and analysts predict that some time in the next few decades it will hit the maximum and start to go down.

What do I buy? Here’s an article with like 20 shale companies (my personal favourite is SN): https://www.marketwatch.com/story/these-us-shale-oil-companies-are-poised-to- profit-when-prices-rise-2016-03-14 Some Oil ETFs: http://www.etf.com/channels/oil-etfs Classic, safe, blue chip oil include BP, XOM, RDS.A, TOT, PTR, SNP, SLB and EPD.

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