Project ‘Minyak’ Warren Leow
In Perspective $113/bbl 1998: $12.21 “85m barrels of oil a day is all the world can produce, and the demand is 87m,” Boones Pickens, May 2008
Impact • OPEC producer earnings to reach $1.251 trillion in 2008 (from $671b in 2007) • Growth of Sovereign Wealth Funds • Exxon- $40b annual profit • Fuel/Food riots
Geo-Political Risks Iraq Iran Venezuela Nigeria Declining Output Russia Mexico United Kingdom Norway
Price Inelasticity • Global oil demand remains relatively resilient despite high prices. • Much of the growth will come from markets with regulated prices that insulate consumers from record high oil prices. • E.G. China, India, Indonesia, Malaysia
“[T]here’s no news of a pipe bursting in Nigeria,” “There’s no news of a facility being … attacked in Iraq. We don’t know why it’s up and that’s the point. What is causing oil to go up and down?” • Lehman Brothers said for every $100 million in new inflows by institutional investors, the price of West Texas Intermediate increased by 1.6%. • Late July, CFTC re-classified one large unidentified commercial hedger as a speculator- raising NYMEX open interest from 38% to 49%. • Since July 3rd, commodities have tumbled 21% on average.
SemGroup, July 2008 - $3b • Amaranth, fall 2006 - $6b • BP, Shell, Total, Lukoil • Glencore, Vitol, Trafigura • Goldman Sachs, Morgan Stanley, Barcaps
Crude oil is the new gold. • Weak USD has turned oil into the "new gold," to hedge against inflation and mitigate losses during equity & credit market downturns. • Prices of commodities quoted in USD are inversely related to USD movements • With the USD strengthening, oil has been falling.
Conclusion • Power shifts from Oil consumers to producers • Negative impact in ST due to lagged effect • Economic planning becomes difficult