Crude Oil

Presented by: Abhishek Nag

Presented To: Prof. Arindam Banerjee

Recent overview of crude oil

Oil prices fell sharply in the second half of 2014.

Four-year period of stability around $105 per barrel.

From June 2014, the global oil prices started a trend of downward shift.

From $115 per barrel it touched a low of $45 per barrel in Jan 2015.

This decline being the largest since the 2008 decline when prices fell from a whooping $145.85
per barrel to $32 per barrel.

Oil is feedstock for various sectors, including petrochemicals, paper, and aluminium, the decline
in price directly impacts a wide range of processed or semi-processed inputs.

The transportation, petrochemicals, and agricultural sectors, and some manufacturing industries,
would be major beneficiaries from lower prices.

West
Texas
Intermediate (WTI)
crude oil is of very
high quality and is at
refining
a
larger
portion of gasoline. Its
API gravity is 39.6
degrees, which makes
it a "light" crude oil,
and it contains only
about 0.24 percent of
sulfur
(making
a
"sweet" crude oil).
Brent
Blend
is
actually a combination
of crude oil from
fifteen different oil
fields located in the
North Sea. It is still a
"light" crude oil, but
not quite as "light" as
WTI, and it contains
about 0.37 percent of

Total Production
Country
United States
Saudi Arabia
Russia
China
Canada
United Arab Emirates
Iran
Iraq
Mexico
2009
Kuwait
60%
Brazil Top 10
Venezuela
Top 25
89%
Nigeria
Qatar
Angola
Norway
Algeria
Kazakhstan
Colombia
Libya
India
Oman
Indonesia
Azerbaijan
United Kingdom (Offshore)
World

*Thousand Barrels Per

2009*
9130.085
10314.71
10049.55
4067.544
3318.829
2794.552
4178.296
2399.167
3000.791
2010
2505.943
61%
2561.713
2710.293
89%
2212.18
1573.248
1908.029
2352.555
1909.815
1541.566
690.2767
1790.109
873.5938
818.8882
1053.151
1015.945
1422.145
85763.03

2010
9695.589
10908.35
10293.84
4362.658
3441.73
2813.244
4243.073
2402.876
2978.599
2011
2460.293
63%
2712.473
2599.242
89%
2459.404
1787.899
1947.756
2134.621
1880.965
1608.692
805.8898
1789.11
965.3015
869.8542
1041.98
1044.862
1318.737
88177.82

2011
2012
10128.47
11118.69
11466.71
11840.68
10410.06
10594.8
4346.983
4372.446
3597.333
3856.44
3213.766
3398.194
4213.968
3517.817
2628.993
2986.641
2959.989
2012 2936.009
2691.818
2796.788
63%
2685.154
2651.894
2689.24290% 2689.242
2554.488
2524.143
1936.395
2032.611
1799.887
1831.643
2007.35
1902.084
1862.965
1875.208
1638.354
1605.879
938.5432
969.0549
501.466
1483.044
995.8053
990.1779
890.8871
923.7735
1022.38
989.255
993.2248
931.8823
1084.068
922.3808
88569.58 90456.57

Source: www.eia.gov

2013
12342.77
11701.51
10763.74
4459.413
4073.868
3440.588
3192.37
3057.692
2907.834
2013
2811.842
65%
2693.866
2689.242
91%
2371.513
2067.299
1889.416
1826.096
1762.746
1658.275
1028.474
983.6167
982.2031
945.1275
942.2928
880.6013
827.3068
90878.17

Total Consumption
Country
United States
China
Japan
Russia
India
Brazil
Saudi Arabia
Canada
Germany
Korea, Top
South
10
Mexico
Top 20
Iran
France
Indonesia
United Kingdom
Italy
Thailand
Singapore
Spain
Australia
World

2009
58%
75%

*Thousand Barrels Per

2009*
2010
2011
18771.4
19180.13
18882.07
8069.821
8938.357
9504.048
4362.794
4429.236
4442.446
2888.534
3081.824
3352.108
3067.781
3115.45
3280.983
2459.303
2698.951
2776.564
2436.116
2579.733
2760.911
2184.18
2283.353
2310.121
2010
2011
2434.471
2466.927
2392.202
2188.48758%
2268.518 59% 2259.383
2069.613
2080.438
2112.556
75%
76%
1958.641
1811.006
1781.848
1868.07
1833.447
1793.204
1341.342
1441.819
1559.235
1634.229
1620.316
1578.231
1544.241
1544.228
1493.832
1058.557
1128.108
1179.943
1024.198
1149.369
1216.005
1467.517
1441.006
1385.319
988.9474
1005.469
1048.239
84971.75
87857.84
88799.7

2012
18490.21
9980
4694.756
3395.109
3450
2864
2861
2351.877
2012
2389.133
59%2321.622
2085.602
76%
1790
1771.791
1600
1528.307
1370.12
1249.342
1240
1300.928
1073.606
89721.11

Source: www.eia.gov

2013
18961.13
10303
4530.825
3515.143
3509
2998
2968.29
2431.283
2013
2403.156
2324.013
59%
2044.27
76%
1870
1767.204
1635
1507.799
1315.12
1271.017
1264
1205.012
1082.731
91194.88

Production v/s Consumption 2009-2013

Country
United States
Saudi Arabia
Russia
China
Canada
United Arab Emirates
Iran
Iraq
Mexico
Kuwait
Brazil
Venezuela
Nigeria
Qatar
Angola
Norway
Algeria
Kazakhstan
Colombia
Libya
India
Oman
Indonesia
Azerbaijan
United Kingdom (Offshore)
World

% Gwt in
Production
35%
13%
7%
10%
23%
23%
-24%
27%
-3%
12%
5%
-1%
7%
31%
-1%
-22%
-8%
8%
49%
-45%
12%
15%
-11%
-13%
-42%
6%

Country

% Gwt of
Consumption

United States

1%

China
Japan
Russia
India
Brazil

28%
4%
22%
14%
22%

Saudi Arabia

22%

Canada
Germany

11%
-1%

Korea, South

6%

Mexico
Iran
France
Indonesia

-1%
-5%
-5%
22%

United Kingdom

-8%

Italy
Thailand

-15%
20%

Singapore

23%

Spain
Australia
World

-18%
9%
7%

OPEC

OPEC coordinates and unifies the petroleum policies of its members.

In 2014 OPEC comprised 12 members: Algeria, Angola,Ecuador,

Iran,Iraq, Kuwait,Libya,Nigeria,Qatar,Saudi Arabia, theUnited Arab
EmiratesandVenezuela.

OPEC member countries produce about 40 percent of the world's

crude oil.

Equally important to global prices, OPEC's oil exports represent

about 60 percent of the total petroleum traded internationally

On November 27, a big meeting was held by the Cartel, and countries, like
Venezuela and Iran, proposed that the Cartel (mainly Saudi Arabia)
decreases oil production in order to maintain stability in the oil prices.

Just to ensure it maintains its market share, Saudi Arabia, the world's
largest oil producer, did not agree to reducing oil production and was willing
to let prices plummet.

"We will produce 30 million barrels a day for the next 6 months, and
we will watch to see how the market behaves," said OPEC Secretary-General
Abdalla El-Badri.

Crude oil - Geopolitical and Economic Effect

Sources: U.S. Energy Information

Administration, Thomson Reuters

Supply And Demand

Technological shift from vertical to horizontal drilling in US led to it
becoming a producer from a consumer.
Major boom in shale gas production causes the production increase by 0.9
million barrel per day.
Between July and Dec 2014 alone, the projected oil demand for 2015 is
downwards by 0.8 million barrel per day.
TheUSis producing record amounts of oils plenty of supply out
ofOPECandRussia. But theres not enough demand from developing
economies likeChinaandIndia to consume all the oil thats being supplied.
A global recession has left Asian demand weaker than expected, and
governments are slashing fuel subsidies across Asia
Its not just Asia, though. Austerity measures and decreased consumption
acrossEuropeare curbing oil demand throughout that continent, too

contd
Global oil demand growth in 2014 is expected to be around 0.96 mb/d,
broadly unchanged . In 2015, world oil demand is projected to rise by 1.17
mb/d slightly higher
Demand expected to decline
through 2016
Supply shortfalls
Efficiency gains
Fuel switching to natural gas (cars,
ships, trains) and electricity (cars)
Growth in plug-in hybrid electric
vehicles
Growth in battery electric vehicles
Overcapacity stymied growth in
refining
All markets but Asia will experience
gasoline glut
Source:
IEAs Medium-Term Oil Market Report
Global EV Outlook: Understanding the Electric Vehicle
Landscape to 2020

Middle East Context

Saudi output surged to 30-year highs in summer 2014
Scant evidence of near-term decline
50,000 bbl/d increase to 9.65 mbbl/d in September
Saudi Arabia has 1.5 m 2 mbbl/d ready spare capacity to mitigate market flux
Socio-political distress in the Middle East and North Africa raising OPEC risk
Tension in OPEC
Members uncomfortable with price cuts and oil glut; disunity present
Saudi Arabia refusing to raise prices in response to Angolan and Libya n
discounts
o Unconventional oil production in danger with crude slump. US O&G
company profit margins down in 3rd quarter.
o Russian revenues will fall (will continue production expecting price
rebound)
OPECis now engagedina "price war" with the US.
It's relatively cheap to pump oil out of places like Saudi Arabia and Kuwait.
But it's more expensive to extract oil from shale formations in places like
Texas and North Dakota.
So as the price of oil keeps falling, some US producers may become
unprofitable and go out of business. And the price of oil will stabilize. At
least that's what OPEC members hope.

How does the fall in oil prices affect India?

In India the fall in oil prices will help lower inflation and reduce current account deficits a major source of
vulnerability for many of these countries India, which is the fourth largest consumer of oil, is a big beneficiary of
falling oil prices.
India imports nearly two-thirds of crude oil requirements.
The reduced prices will not only lower the import bill but also help save foreign exchange.
And It will also enable oil marketing companies to reduce retail prices of petrol and diesel.
As per rough estimates, a $10 fall in crude could reduce the current account deficit by approximately 0.5% of GDP
and the fiscal deficit by around 0.1% of GDP.
Lower oil prices have also aided government's efforts to keep inflation low and stable besides curtailing fuel subsidies.
A lower subsidy bill will help contain the country's fiscal deficit a measure of the amount the government borrows
to fund its expenses at the budgeted level of 4.1% of GDP in 2014-15.
With every dollar decrease in oil prices, the government's oil import bill comes down by Rs. 4,000 crore.

Indias Requirement

Some of the major initiatives taken by the Government of India to promote oil and
gas sector are:
India and Norway have discussed bilateral relationship between the two countries in the field
of oil and natural gas and decided to extend cooperation in hydrocarbon exploration.
India and Vietnam have stepped up cooperation in the energy sector as ONGC Videsh and
PetroVietnam Exploration Production Corporation has signed an agreement to explore three oil
blocks.
The Government of India has planned to set up a Petroleum, Chemicals and Petrochemicals
Investment Region (PCPIR) near Bina, Madhya Pradesh with an investment worth around Rs 1
trillion (US$ 15.71 billion).
The Government of India gave its approval to sign a memorandum of understanding (MoU)
between India and the US for cooperation in gas hydrates for a period of five years.

The oil futures market

A sell-off in global oil markets amid a burst of bearish factors pushed crude oil
futures to more than five-year lows during December trading. ICE Brent settled
down a hefty $16.36 at $63.27/b, while Nymex WTI lost $16.52 to finish the
month at an average of $59.29/b. Over the month, both benchmarks declined by
a massive 21% and 22%,
respectively.
Speculative bets on a rebound in oil prices rose sharply over the month,
particularly in ICE Brent, as crude oil prices reached a five-year low. Investor
inflows into funds that track crude oil exceeded four-year highs on speculation
that prices would rebound from a five-year low. ICE Brent net length positions
increased a hefty 75% to 115,571 contracts during the last week in December,
according to figures from the ICE Futures Europe exchange. This is due to the
combination of a 27,058 rise in long positions and 22,540 reduction in short
positions.
Hedge funds and money managers also made bullish bets on a rising US crude
oil market, increasing net length by almost 25% over the month. Net long US
crude futures and options positions during the month increased to 199,388 lots,
US Commodity Futures Trading Commission (CFTC) data show. Long speculative
The in
daily
average
traded volume
during December
for Nymex
positions
Nymex
WTI increased
5.2% to 259,613
lots, while short
positonsWTI
contracts
slightly
by 589 lots
average
contracts.
decreased
by decreased
29% to 60,225
lots. Moreover,
totaltofutures
and641,751
options open
ICE Brent
daily
traded
volume
also fellinby
65,786 contracts
596,517
interest
volume
in the
two markets
increased
December
by 499,177to
lots
to 4.6

Forecast
2014 Estimate

Forecast for 2015

http://www.opec.org/

Thank You