Falling Oil and its Impact Money.Net Falling Oil and its Impact Presented by: Morgan Downey CEO, www.Money.Net Author, Oil 101 February 4, 2015

Global Oil Market Fundamentals Peter Went, Money.Net

Oil Prices Fall by More than Half in Just Four Months

It’s all about three things: Global oil demand slows. The Simple Answer It’s all about three things: Global oil demand slows. US oil supply grows. 3. Libyan oil supply recovers.

Global Growth Expectations Slowed Oil demand forecasts for 2015 began to be cut.

US Fracking has Taken Large Oil Market Share Since 2009 2. US oil supply increases and pushes OPEC oil off the market.

US Fracking has Taken Large Oil Market Share Since 2009 3. Libyan oil supply recovers. Libyan supply disruption shrinks.

The Net Result The Net Result is: Someone (OPEC or Non-OPEC) needs to cut supply by 1 to 1.5 million barrels per day to balance the global market and stop oil simply filling storage tanks.

Someone Needs to Cut Supply by 1million barrels per day OPEC needed to cut supply to prevent this unneeded oil inventory hitting the market in 2015. They decided not to cut which is why prices collapsed.

Since 1973 OPEC have managed prices by withholding supply

Why did OPEC not Cut supply like they usually do? The New Oil Price War: OPEC vs US Frackers Usually there is some talk of supply cuts any time prices sell off. When prices began to fall in Aug-2014 OPEC stayed relatively silent. OPEC Say Nothing (very unusual) Rosneft CEO (large Russian oil company) appears at OPEC meeting in November and refuses to support an OPEC-Russia combined supply cut. Last Minute Deal with Russia Fails Saudis have low debt and large cash reserves US oil frackers have high debt and low cash reserves Saudis feel they can bankrupt US frackers easily with sub-$75 oil which would result in much high oil prices over the long term. Saudis do not want to lose any more

Global Oil Demand Peter Went, Money.Net

Demand is still growing, just not as fast as needed to soak up new supply

Asia and Developing Economies are the source of growth

Global Oil Supply Peter Went, Money.Net

The US Oil Frackers are almost all supply growth

Even with Lower Prices, US Oil Supply is expected to grow in 2015

Although lower oil prices have slowed drilling

Texas and North Dakota Benefitted the Most from Fracking

What Happens Next? Peter Went, Money.Net

A Range Bound 2015

Global Oil inventories will hit highs

US Crude and Gasoline Inventories to hit new Highs, Diesel Lows The US government ban on US crude oil exports has resulted in the US oil industry exporting diesel as a proxy instead. This means diesel prices at the pump in the US have not fallen

US is importing less, but exporting a lot more refined products

2015 will be a record year for US Gasoline Consumption So much for those calling for a “Peak Demand” for US oil consumers a few years ago.

The Known Unknowns Peter Went, Money.Net

Unexpected Events that Could cause much higher prices in 2015 Terrorism event affecting production infrastructure in large oil producing nation. US frackers cut production much more than anticipated. Russia approaches OPEC to cut supply in cooperation.

Oil Supply Cuts due to Unplanned Events: Non-OPEC Dec 2014

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