OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com Global Oil Market James L. Williams WTRG
Economics Oklahoma State University February 22-23, 2010
Stillwater, Oklahoma Tulsa, Oklahoma Slide 2 OSU February 22-23,
2010James L. Williams WTRG Economics 479-293-4081 www.wtrg.com Oil
Price - Its not Econ 101 A.Price = f ( Supply, Demand ) B.Price = f
( Myth, Perception, Reality ) C.Price = f (Conspiracies, Politics,
OPEC) D.None of the above E.All of the above Our goal is to know
what is knowable and to identify the major uncertainties. Slide 3
OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com U.S. Petroleum Consumption 12 Year Low
-10% Slide 4 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Slow Recovery from 1978 1983
Drop -6% -19% 20 years Slide 5 OSU February 22-23, 2010James L.
Williams WTRG Economics 479-293-4081 www.wtrg.com Residential
Sector Never Recovers 1978 1983 Drop -6% -19% 20 years Slide 6 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Commercial Sector Never Recovers 1978 1983 Drop -6%
-19% 20 years Slide 7 OSU February 22-23, 2010James L. Williams
WTRG Economics 479-293-4081 www.wtrg.com Power Sector Never
Recovers 1978 1983 Drop -6% -19% 20 years Slide 8 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Industrial Sector Eventually Recovers 1978 1983 Drop
-6% -19% 20 years Slide 9 OSU February 22-23, 2010James L. Williams
WTRG Economics 479-293-4081 www.wtrg.com Transportation Sector
Recovers Quickly from 1978 1983 Drop and Peaks before the Current
Recession -6% -19% Slide 10 OSU February 22-23, 2010James L.
Williams WTRG Economics 479-293-4081 www.wtrg.com Consumption
Lessons from the 1970s First Price Spike: 1973 Embargo Short-term
drop in consumption More efficient autos (5 year delay) Better home
insulation Fuel switching - natural gas, nuclear Second Price
Spike: Iranian Revolution & Iraq Invades Iran 1978-1980
Long-term effects from 1973 combine with reaction to new price
increase US consumption drops 19% Returns to 1978 level 20 years
later. Slide 11 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com World - Consumption Slide 12
OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com OECD - Consumption Slide 13 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Non OECD - Consumption Slide 14 OSU February 22-23,
2010James L. Williams WTRG Economics 479-293-4081 www.wtrg.com
China - Consumption Slide 15 OSU February 22-23, 2010James L.
Williams WTRG Economics 479-293-4081 www.wtrg.com India -
Consumption Slide 16 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Asia Ex. China, India &
Japan Slide 17 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com U.S. Rotary Rig Count Slide 18
OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com U.S. Rotary Rig Count & Revenue Slide
19 OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com U.S. Rotary Rig Count - Oil Slide 20 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com U.S. Rotary Rig Count - Gas Slide 21 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com U.S. Rotary Rig Count - Horizontal Slide 22 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com International Rotary Rig Count - Oil Slide 23 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com OPEC Rotary Rig Count Slide 24 OSU February 22-23,
2010James L. Williams WTRG Economics 479-293-4081 www.wtrg.com
World Oil Production Slide 25 OSU February 22-23, 2010James L.
Williams WTRG Economics 479-293-4081 www.wtrg.com Non OPEC Oil
Production Slide 26 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Russia & USSR Oil
Production Slide 27 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Non OPEC Declines in Oil
Production Slide 28 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Non OPEC Gains Oil Production
Slide 29 OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com OPEC Oil Production Slide 30 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Iraq, Iran, Kuwait & Nigeria Oil Production Slide
31 OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com Saudi Swing Producer Slide 32 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Venezuela - Chavez under threat? Slide 33 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Rules for Oil Price Forecasting 1.Never mention a
price & a date in the same talk. 2.If you cant forecast well
forecast often. 3.If you are ever lucky enough to get it right,
dont let anyone forget it Slide 34 OSU February 22-23, 2010James L.
Williams WTRG Economics 479-293-4081 www.wtrg.com Supply
Interruption Price Risk Slide 35 OSU February 22-23, 2010James L.
Williams WTRG Economics 479-293-4081 www.wtrg.com Price Risk
Recession Slide 36 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Inventory / Consumption Slide
37 OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com Demand for Futures Contracts Greater
Impact Than Physical Demand? Slide 38 OSU February 22-23, 2010James
L. Williams WTRG Economics 479-293-4081 www.wtrg.com Demand for
Futures Contracts Greater Impact Than Physical Demand? Slide 39 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Futures Price and Stocks at Cushing, OK Slide 40 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Demand for Futures Contracts Greater Impact Than
Physical Demand Downside Risk Index funds, ETFs and swap dealers
have been often been exempt from limits on number of contracts they
can hold. End of September futures and options held by this group
represented the equivalent of 1/2 of all NYMEX contracts. They are
net long (buyers) and the equivalent of 1/3 of all futures
contracts. This increased demand for futures (not physical oil) has
increased the futures price. The futures price impacts the spot or
cash price. Slide 41 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Politics, Geopolitics &
Nature Supply Interruptions Wars Natural disasters Consumer
Policies Taxes Transportation, Carbon CAF More Efficient Auto Law
Import duties / restrictions Price controls Producer / OPEC
Policies Quotas Embargos Taxes Royalty rates Slide 42 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com OPEC Production Risk Production Quotas Saudi Arabia /
Yemen Venezuela Embargo Unlikely Revolution Possible? Nigeria Niger
Delta / MEND Iraq +2 million??? Iran Psychological Israel Attacks?
Slide 43 OSU February 22-23, 2010James L. Williams WTRG Economics
479-293-4081 www.wtrg.com OPEC Concerns * OECD economy * Asian
economy * Strength of the dollar * Non-OPEC production gains * Fuel
switching o Natural Gas o Nuclear o Biofuels o Coal to liquids o
Gas to liquids * Taxes on petroleum products * Carbon Tax *
Expansion of public transportation * Efficiency * Increased oil
& gas exploration * Higher taxes on petroleum Slide 44 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Consuming Nations Consumer concerns * Global warming *
Peak oil * Security of Supply Economic Military * Supply
interruption OPEC member Hurricane * Dependence * World economy
Consumer responses * Fuel switching * Natural gas * Nuclear *
Biofuels * Coal to liquids * Natural gas to liquids * Improved
Storage Device * Batteries * Natural gas * Taxes on petroleum
products * Expansion - public transportation * Efficiency *
Increased oil & gas exploration Slide 45 OSU February 22-23,
2010James L. Williams WTRG Economics 479-293-4081 www.wtrg.com
Risks for 2010 Upside Saudi Arabia / Yemen Venezuela Nigeria Iraq
Iran Hurricanes OPEC production cut Refineries Downside U.S.
Recession European Recession Asian growth More OPEC Capacity More
non-OPEC Capacity Fuel Switching Efficiency Slide 46 OSU February
22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com 2015 - 2025 Better battery Gas to liquids Coal to
liquids Oil from algae Nuclear Solar generation Wind generation
Tidal generation Geothermal Petrol powered cars lose share to
electric and natural gas Desuburbanization Smaller homes Passive
solar heating & cooling homes & buildings More efficient
everything Slide 47 OSU February 22-23, 2010James L. Williams WTRG
Economics 479-293-4081 www.wtrg.com Natural Gas Slide 48 OSU
February 22-23, 2010James L. Williams WTRG Economics 479-293-4081
www.wtrg.com Natural Gas Gs natural Slide 49 OSU February 22-23,
2010James L. Williams WTRG Economics 479-293-4081 www.wtrg.com
Contact Information James L. Williams WTRG Economics P.O. Box 250
London, Arkansas 72847 Phone: 479-293-4081 Email: [email protected]
Website: [email protected]
