ECONOMICS OF OIL March 3, 2015.

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Presentation transcript:

ECONOMICS OF OIL March 3, 2015

Topics - Economics of Oil Price changes over time / Price formation World supply and demand The U.S. demand and imports World proved reserves / Are we running out? Components of gasoline price at the pump

Oil Price: Great Price Volatility over Time. Why?

External Econo-Political Shocks and Price

The SR Supply and Demand Elasticity Inelastic S and D - ED gasoline = 0.2 (SR) - Production constraints (SR) The S and D shifters? Supply: War, embargoes, OPEC, natural disasters, exploration, fracking. Demand: The business cycle, conservation, and substitutes Expectations, and speculative Investors.

The SR Supply and Demand Elasticity

Price changes Changes in supply or demand have large impact to price, small impact to quantity Recent changes worldwide Recent changes US

Price changes

World Oil Supply

World Oil Supply

The World’s Top Producer of Oil is also… ..the world’s top importer of oil. Why?

The World Daily Oil Consumption - by Country (2014), Barrels per Day # 1 United States: 19,400,000 # 2 China: 10,400,000 # 3 Japan: 4,367,000 # 4 Russia: 2,858,000 # 5 India: 2,722,000 # 6 Germany: 2,456,000 # 7 Brazil: 2,372,000 # 8 Canada: 2,371,000 # 9 Saudi Arabia: 2,311,000 # 10 Korea, South: 2,214,000 USA in a class of its own! Total: 91,000,000 bbl/day

The Volume of U.S. Oil Imports Note: From 10M Barrels / Day to 6.6 M Barrels/Day in six years [U.S. Daily consumption is 19.4M. Barrels/Day] A decreasing dependence on oil imports

The U.S. Crude Oil Imports - by Country (thousand barrels per day) 2009 2012 1. CANADA 1,956 1,938 2. MEXICO 1,187 1,096 3. SAUDI ARABIA 1,503 989 4. VENEZUELA 1,039 965 5. NIGERIA 922 771 6. ANGOLA 504 449 7. IRAQ 627 448 8. BRAZIL 231 294 9. ALGERIA 312 277 10. COLOMBIA 178 254 11. RUSSIA 116 232 12. KUWAIT 206 185 13. ECUADOR 214 174 14. AZERBAIJAN 73 75 15. CONGO (BR) 67 64 Friends and Foes The Business Goes On…

Peak Oil The Hubbert peak theory for any given geographical area, the rate of petroleum production tends to follow a bell-shaped curve. Early (pre-peak), the production rate increases because the discovery rate and infrastructure. Later (post-peak), production declines because of resource depletion.

Have We Reached the Peak Yet?

World Reserves Will the world run out of oil in the next few decades? No, for two reasons… Rank Country Reserves (MMbbl) 1 Venezuela 298,350 2 Saudi Arabia 268,350 3 Iran 173,625 4 UAE 157,300 5 Iraq 140,300 6 Kuwait 104,000 7 Canada 97,800 8 Russia 80,000 9 Libya 48,014 10 Nigeria 37,200 11 United States 30,529 TOTAL WORLD 1,481,526 Reserves / Daily use = _______

The Price of Gas at the Pump 2010 2015 The ones who make the big money are…

Have an Oily Day!] Want to learn more? www.eia.doe.gov