The Effects of Oil Price Instability By: Miranda Henning, Rachel Nelson and Ryan Fetterer

History of Oil Prices The graph shows the 70 year historical chart of crude oil prices by the barrel. High of $151.22 in June 2008 Low of $28.50 in January of 2016 for the last 15 years

Who is most affected? Russia Venezuela Saudi Arabia OPEC United States One of the worlds largest oil producers. Oil and Gas account for 70% of export incomes. Lose about $2bn in revenue for every dollar fall in the oil price. Venezuela Running at about 60% inflation and relies on oil income to pay its way. Saudi Arabia Largest oil producer While low prices affect them (need oil to be about $85 a barrel in long term) they have built up enough of a reserve to withstand the fluctuation and thus will not lower output to stabilize the price. OPEC Most countries do not have the foreign currency reserve that Saudi Arabia has and need the oil prices to balance their budget and are under pressure from the United States. United States US oil production is at the highest in 30 years. The oil companies however have a higher cost to product than more competitors meaning they must continue pumping to pay expenses and debts. Europe & Asia Benefit greatly from the decline in oil prices. Most of Asia and Europe import almost all their oil and thus will see economic growth due to low prices.

World Oil Production

Reasons for Decline Biggest problem is too much supply and not enough demand Weak demand in many countries due to insipid economic growth Surging US production US production has nearly doubled in the last several years OPEC is determined not to cut production as a way to prop up prices

But oil prices have risen lately? The forest fire in Canada has nearly stopped all of Canada’s output Rebel attacks in Nigeria have slowed supplies in that region Fluctuations are expected to be short lived Demand in Europe and developing markets is low Cars are more efficient lowering demand US is the only country where demand seems to be rising

Effects of a price decline We are currently in the biggest downturn of oil prices since the 1990’s Earnings are down for companies that made record profits in recent years that have caused them to decommission more than 2/3 of their rigs and cut investments in exploration and production Many companies bankrupt US-250,000 oil workers and nearly half have lost their jobs Venezuela, Nigeria, Ecuador, Brazil and Russia are facing economic and political turbulence Chevron, Royal Dutch Shell and BP have all announced payroll cuts

Recent Effect on Futures Oil futures settled at a 3 week low on June 14th. Brought down by the Federal Reserve interest-rate decision and a referendum on whether the UK should exit the EU. Futures fell even when the International Energy Agency showed expectations of a higher oil demand. Expecting demand and output of oil to grow because of emerging markets in India and China

Effects on Exchange Rates Country Rate per $1 June 1, 2014 Rate per $1 June 1, 2016 Russia 34.8747 Rubles 67.1087 Rubles Venezuela 6.2935 Bolivars 9.9500 Bolivars Canada 1.0844 CAD 1.3081 CAD Saudi Arabia 3.7512 Riyals 3.7534 Riyals

Discussion Questions Where do you predict oil prices to go in the upcoming years? How do you think the research and development of a more sustainable energy sources will effect the demand for oil? In your opinion, what might be some ways to level out the supply and demand for oil and thus stabilizing the price?

Sources http://www.macrotrends.net/1369/crude-oil-price-history-chart http://www.bbc.com/news/business-29643612 http://www.marketwatch.com/story/oil-prices-hover-below-50-as-us-stockpiles-come-into-focus-2016-06-14 http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0 http://www.exchange-rates.org http://www.investopedia.com/articles/investing/102015/currencies-most-affected-falling-oil-prices.asp