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Markets and Politics Bob Tippee Editor, Oil & Gas Journal PVF Roundtable General Assembly Meeting Aug. 18, 2009 Crude prices Oil prices track stock prices Source: KBC Market Services, Monthly Oil Market Outlook, Aug. 6, 2009 World oil demand (MMb/d) 83.9 -2.8% 86.3 -0.2% FR: 85.4

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Markets and politics l.jpg

Markets and Politics

Bob Tippee

Editor, Oil & Gas Journal

PVF Roundtable General Assembly Meeting

Aug. 18, 2009



Oil prices track stock prices l.jpg
Oil prices track stock prices

Source: KBC Market Services, Monthly Oil Market Outlook, Aug. 6, 2009


World oil demand mmb d l.jpg
World oil demand (MMb/d)

83.9

-2.8%

86.3

-0.2%

FR: 85.4

Source: IEA


Iea s demand view l.jpg
IEA’s demand view

2009 vs. 2008

Million b/d

2008 vs. 2007

To 83.8 MMb/d for ‘09

Forecast month

Source: IEA Monthly Oil Market Report for each month indicated


World oil supply mmb d l.jpg
World oil supply (MMb/d)

84.6

-2.2%

FR: 85.7

*Plus other biofuels. Source: IEA


Non opec supply mmb d l.jpg
Non-OPEC supply (MMb/d)

Source: IEA; Note: Includes OPEC members as of 1-1-09. Angola (1.7 MMb/d), Ecuador (0.5 MMb/d) joined OPEC in ’07. Indonesia withdrew from OPEC in ’08.


Opec ngl mmb d l.jpg
OPEC NGL (MMb/d)

5.2 +11%

2010:

6.1

Source: IEA


Forcing balance mmb d l.jpg
Forcing balance (MMb/d)

Source: IEA *OGJ assumption.


Observations mmb d l.jpg
Observations (MMb/d)

  • Call = 28.2

  • Quota = 24.85

  • Call - Iraq @ 2.4 = 25.8

  • June OPEC-11 crude = 26.12


Opec s market view l.jpg
OPEC’s market view

Source: OPEC Monthly Oil Market Report, January 2009


Opec production oecd stocks l.jpg
OPEC production/OECD stocks

Source: OPEC Monthly Oil Market Report, June 2009




The market a snapshot l.jpg
The market: a snapshot

  • Demand will be down in ’09 – but the amount of expected decline is stabilizing

  • Cushions thick: stocks, p’n capacity

  • OPEC has tried to follow demand down with production cuts

  • Demand revival depends on economy


Imf s world economic outlook l.jpg
IMF’s World Economic Outlook*

Percent; quarter-over-quarter; annualized.

*Updated July 8, 2009.


The questions l.jpg
The questions

  • What drives prices?

    • Fundamentals (supply and demand)

    • Investment flows

    • Currency fluctuations

  • Will OPEC wait too long to raise output?

    • Non-OPEC output?

    • Role of speculators?


Us energy shares l.jpg
US energy shares

Source: EIA for 2004-08


Us product demand mmb d l.jpg
US product demand (MMb/d)

18.76

-3.4%

18.73

-3.9%

Note: Before exports (1.76 in ’08; 1.85 in ’09). Source: EIA for 2004-08.


Gasoline distillate demand mmb d l.jpg
Gasoline, distillate demand (MMb/d)

9.01

+.02%

3.76

-4.7%

Source: EIA for 2004-08


Gasoline ethanol use mmb d l.jpg
Gasoline, ethanol use (MMb/d)

9.01

+0.2%

EISA mandate: 2.4 MMb/d in 2022 (all biofuels)

’09 is mandate (724 Mb/d)

Source: EIA for 2004-08


Ulsd biodiesel use mmb d l.jpg
ULSD, biodiesel use (MMb/d)

3.008

-6.2%

Applied 80% factor to dist. demand

’08 production: 44,500 b/d;

’08 consumption: 20,900 b/d

’22 mandate:

326,160 b/d

Source: EIA for 2006-08


Industry oil imports mmb d l.jpg
Industry oil imports (MMb/d)

65% of demand

12.15

-5.8%

Source: EIA for 2004-08


Us refining l.jpg
US refining

MMb/d

%

Source: EIA for 2004-08


Us total liquids production mmb d l.jpg
US total liquids production (MMb/d)

7.05 +4.6%

Source: EIA for 2004-08


Us gas consumption tcf l.jpg
US gas consumption (tcf)

22.75

-2.0%

Source: EIA for 2004-08


Marketed gas production tcf l.jpg
Marketed gas production (tcf)

21.23

-1.0%

21.2 +5%

Source: EIA for 2004-08


Us gas imports tcf l.jpg
US gas imports (tcf)

LNG 0.53

+50%

Source: EIA for 2004-08


Us drilling completions l.jpg
US drilling--completions

43,384 -16.7%

36,788

-29.4%

Source: API for 2004-08


Us drilling rig count l.jpg
US drilling – rig count

1,503

-19.5%

1,235

-33.9%

Source: Baker Hughes for 2004-08



Renewables instead of oil 1 l.jpg
Renewables instead of oil – 1

From Treasury Department explanations of budget oil, gas provisions:

“The [measure or its result], like other oil and gas preferences the administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system…”


Renewables instead of oil 2 l.jpg
Renewables instead of oil – 2

“…To the extent the [measure or result] encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program.”


Closing the gap takes money l.jpg
Closing the gap takes money

Source: US Energy Information Administration


Arithmetic of subsidies 1 l.jpg

Oil & gas in 1981

38.1 x 1015 btu

$10.9 billion subsidies (percentage vs. cost depletion and expensing E&D costs)

Ethanol in 2007

550 x 1012 btu

$3.2 billion subsidies

Arithmetic of subsidies - 1

29¢/MMbtu

$5.82/MMbtu

Source: “Federal Financial Interventions and Subsidies in Energy Markets 2007,” Energy Information Administration, April 2008


Arithmetic of subsidies 2 l.jpg

Oil & gas in 2007

30.57 x 1015 btu

$1.74 billion subsidies (various, mostly for small producers)

Ethanol in 2007

550 x 1012 btu

$3.2 billion subsidies

Arithmetic of subsidies - 2

$5.82/MMbtu

5.7¢/MMbtu


Cost to displace oil and gas l.jpg
Cost to displace oil and gas

  • By 5% from projected 2020 usage levels

  • Assuming $6/MMbtu subsidization of 2.93 quads of solar, wind, and biofuels

  • Requires subsidies totaling $17.6 billion

NOTE: 2007 subsidy levels: solar $7.16/MMbtu, wind $6.87/MMbtu (production), $5.82/MMbtu ethanol (consumption/blending)


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