economics of oil march 3, 2015. topics - economics of oil price changes over time / price formation...

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 substitutesExpectations, andspeculative 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

Total: 91,000,000 bbl/dayUSA 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 20121. CANADA 1,956 1,9382. MEXICO 1,187 1,0963. SAUDI ARABIA 1,503 9894. VENEZUELA 1,039 9655. NIGERIA 922 7716. ANGOLA 504 4497. IRAQ 627 4488. BRAZIL 231 2949. ALGERIA 312 27710. COLOMBIA 178 25411. RUSSIA 116 23212. KUWAIT 206 18513. ECUADOR 214 17414. AZERBAIJAN 73 7515. CONGO (BR) 67 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.

Will the world run out of oil in the next few decades?No, for two reasons…

Reserves /Daily use= _______

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

The Price of Gas at the Pump

The ones who make

the big money are…

• 2010 2015

Have an Oily Day!]

Want to learn more?www.eia.doe.gov