Transcript ECONOMICS OF OIL

ECONOMICS OF OIL
March 3, 2015
Topics - Economics of Oil
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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:
# 2 China:
# 3 Japan:
# 4 Russia:
# 5 India:
# 6 Germany:
# 7 Brazil:
# 8 Canada:
# 9 Saudi Arabia:
# 10 Korea, South:
19,400,000
10,400,000
4,367,000
2,858,000
2,722,000
2,456,000
2,372,000
2,371,000
2,311,000
2,214,000
Total: 91,000,000 bbl/day
USA in a
class of its
own!
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
1. CANADA
1,956
2. MEXICO
1,187
3. SAUDI ARABIA 1,503
4. VENEZUELA
1,039
5. NIGERIA
922
6. ANGOLA
504
7. IRAQ
627
8. BRAZIL
231
9. ALGERIA
312
10. COLOMBIA
178
11. RUSSIA
116
12. KUWAIT
206
13. ECUADOR
214
14. AZERBAIJAN
73
15. CONGO (BR) 67
2012
1,938
1,096
989
965
771
449
448
294
277
254
232
185
174
75
64
Friends
and
Foes
The Business Goes On…
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.
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
Will the
world run
out of oil
in the
next few
decades?
No, for
two
reasons…
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