Geopolitics Oil Prices - Energy Information Administration · 2016-09-28 · • Geopolitics driven by consuming countries policies and producing country events • U.S. China, Russia’s

Copyright @2016, ESAI Energy, LLC 1

Sarah EmersonESAI Energy, LLC

[email protected]‐245‐2036

EIA Workshop on Physical and Financial Oil Market LinkagesSeptember 28, 2016

Geopolitics and Oil Prices

Not Much Oil Demand


480 285

438 14

346 363

459

333

560

348

278 250

(400)

‐

400

800

1,200

1,600

2,000

2,400

2013 2014 2015 2016 2017 2018

000 b/d

Global Oil Demand Growth By Main Product

LPG

Naphtha

Gasoline

Jet Fuel

Diesel

Fuel Oil

Total

Still Some Supply


(1,600)

(1,200)

(800)

(400)

0

400

800

1,200

1,600

2,000

2,400

2013 2014 2015 2016 2017 2018

000 b/d Non‐OPEC Crude and Condensate Annual Growthby Region

OECD OIL SANDS FSU AFRICA LATIN AM Series5 Series4

Surplus Persists Absent Significant Supply Adjustment


Demand Demand

Demand

Demand

Demand

Non

‐OPEC

Non

‐OPEC

Non

‐OPEC

Non

‐OPEC

Non

‐OPEC

OPEC

OPEC

OPEC

OPEC

OPEC

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

2014 2015 2016 2017 2018

(million b/d) Annual CHANGE in Global "Oil" Supply and Demand 2014‐2018

Oil Demand Non‐OPEC Non‐OPEC NGLs and Alternative Fuels OPEC NGLs OPEC Surplus

Structural (Not Cyclical) Change in Geopolitics related to Oil

• Iraq no Longer occupied, Iran no longer under sanctions• Shiite Crescent is greater threat to Sunni power• Russia renewed interest in the AG region• China renewed interest in the AG region• Rise of transnational threats: Al Qaeda, ISIS• Rise of transnational groups: Kurds, refugees• Tension between inter‐national solutions and transnational threats• Multi‐Party civil war in Syria• U.S. foreign policy shift towards Asia Pacific• Current and Potential failed states: Libya, Yemen, Syria, Venezuela, Nigeria,

Ecuador, Algeria• Low crude oil prices• Shale and Oil Sands potential• North America, Europe shifting demand to natural gas and renewables,

vehicle fuel economy gains


Geopolitics of Oil and Producer‐Consumer Relations

Instability Supply Disruption

Price Increase

Economic Pain


Instability Lower Revenues

Less Oil Demand, Lower Prices

More Self Sufficiency, changing Energy Mix

Prod

ucer

Consumer

U.S. Goals: Further Integration (?) with

the Global MarketsDefeat Islamic State

• Supporting Shale Development• Reducing foreign oil dependence• Exporting Crude Oil and LNG• Quality oil balancing (export light,

import heavy)• Opposing IS• Competition with Arab Gulf Producers• Bias towards free trade• Naval Superiority


Russian Goals: Russia as a Great Power

• Played Georgia, Ukraine cards effectively against NATO expansion in Europe

• Prevent regime change in Syria and open door to closer collaboration with Iran and Iraq

• More leverage in the region versus U.S.

• Sell arms to region• Counter radical Islamist Groups

that threaten Russia• Burnish Putin legacy even as Russia

struggles with low oil prices


Chinese Goals: Use Spare Industrial

Capacity to Grow Markets for Chinese goods

• China’s Belt and Road Initiative• New Railway to Iran• Trade talks with Pakistan India

and Myanmar• Turkey as gateway to Europe• Focus on South China Sea is

both economic and military


Meanwhile the Situation at Home(U.S. Crude Imports by Source)


‐2000

0

2000

4000

6000

8000

10000

12000

1973 1978 1983 1988 1993 1998 2003 2008 2013

000 b/d

Other Persian Gulf Africa

North Sea Latin America Canada

1706 1899 2149 1997 1851 1488

1814 1378 867578

269259

32283121

2915

24642361

2477

19702225

2425

25792882 3169

‐1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2010 2011 2012 2013 2014 2015

000 b/d

Other Persian Gulf Africa

North Sea Latin America Canada

7351

2016 YTD Imports:78032016 YTD Exports: 481

42 47 67 134 351 458

Source: EIA

Exports

We Can End Arab Gulf Imports – If We Want


Geographic Realignment of Market?

Accelerated economic integration East of Suez

Declining oil demand in the West

Latent Nationalism and Dissatisfaction with Globalization

Frustration with inter‐national solutions addressing transnational threats like IS


Geographic Realignment(OPEC Countries in Blue)

Final Thoughts• Fundamentally weak market (struggling to return to $60) for years absent a

supply disruption/reduction• Geopolitics driven by consuming countries policies and producing country events• U.S. China, Russia’s interests complicate geopolitics of oil

Russia ‐great power behavior China ‐grow markets U.S. ‐free trade, integration with global markets

‐ but, less dependence on imports‐limited military engagement‐defeat IS

• Geopolitics and Oil Price Geopolitical Pressure on Producers rather than Consumers At least 1.0 million b/d disruption to impact market (maybe more

depending on Libya) Prices have limited upside given potential production Investment shortfall is overestimated Drop in costs offsets drop in investment to a degree Demand continues to be modest


Documents

Geopolitics Oil Prices - Energy Information Administration · 2016-09-28 · • Geopolitics driven by consuming countries policies and producing country events • U.S. China, Russia’s