1. ECONOMICS OF OIL
March 3, 2015

2. 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

3. Oil Price: Great Price Volatility over Time. Why?

4. External Econo-Political Shocks and Price

5. 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.

6. The SR Supply and Demand Elasticity

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

8. Price changes

9. World Oil Supply

10. World Oil Supply

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

12. 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

13. 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

14. The U.S. Crude Oil Imports - by Country (thousand barrels per day)
CANADA 1,956 1, MEXICO 1,187 1, SAUDI ARABIA 1, VENEZUELA 1, NIGERIA ANGOLA IRAQ BRAZIL ALGERIA COLOMBIA RUSSIA KUWAIT ECUADOR AZERBAIJAN CONGO (BR) 67 64
Friends
and
Foes
The Business Goes On…

15. 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.

16. Have We Reached the Peak Yet?

17. 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
= _______

18. The Price of Gas at the Pump
The ones who make the big money are…

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