Oil price - Demand or supply factors at work

Oil price rout - demand or supply factors??

Oil Price – Is it demand or supply factors?

Recent fall in oil price has analysts conclude that the glut of supplies is causing an alarm fall in price.

● OPEC's in action in cutting production signals price war and the intent of the cartel to put shale oil out of business

● But a more sustainable demand dynamics is responsible for the recent glut of Oil prices.

US gasoline prices have fallen steeply in recent times

US gasoline consumption is falling on the back of better fuel efficiency of vehicles

US Oil production have increased sharply in the recent years adding to the supply glut

Oil consumption per GDP have shown a sustained down trend in US economy

Oil cons vs GDP growth correlation is breaking downUS GDP growth last Qtr 2.4% but oil consumption fell

0.3%

Changing Demographics

Urbanization drive is also lessening the vehicle miles travelled

Increase use of public transport system is driving down Oil consumption

Increased investments in renewables

US shale oil is making US net exporter of energy

As a result imports have fallen from OPEC

US is becoming the net exporter of crude

Summary

● US GDP growth last Qtr 2.4% but oil consumption fell 0.3% ● Head winds of Oil consumption

– Improved efficiency of motor vehicles

– Urbanization trend which means less motoring miles by the youth/working class

– Renewable energy push – Wind /Solar etc

– Popularity of plug ins like Tesla with better battery technology

– Carbon emission commitments to rein in global emissions

Closing Thoughts

● Oil price fall along with rise of Dollar index poses a serious conundrum for emerging market central banks – Should they defend their currency to fend off external threats or should they allow their currency to depreciate in the pretext of more exports

● The former action makes good economic sense in the longer term while the latter may boomerang because the expected export growth may not come through and the country may end up importing Inflation!

Thank you for your time.

Presentation authored by:

Avisekh Rakshit

(avisekh@yahoo.com)● Date: 10th Dec 2014

Data Sources: Bloomberg, Publicly available data from DOT & other Govt. agencies