The World Oil Market in 2006tutor2uwww.tutor2u.net

The world oil market in 2006

• A year of price volatility• Oil prices peaked at almost $80 a barrel • Brent crude ended the year at $60 a barrel• Prices are still at historically high levels• Slowdown in world economy including the

USA will impact on global demand• Oil production has increased – but OPEC is

looking to make production cuts to put a floor on the world price

Price of Brent Crude in 2006

Closing daily price, US dollars per barrel of oilBrent Crude Oil Prices

Source: Reuters EcoWin

Jan06

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

US

dolla

rs p

er b

arre

l

55.0

57.5

60.0

62.5

65.0

67.5

70.0

72.5

75.0

77.5

80.0

Futures prices have also dipped

Price - US dollars per barrel, closing daily priceFutures Prices for Oil

Light Crude Futures Z06 (Dec 2006), Nymex Light Crude Futures Z07 (Dec 2007), Nymex Light Crude Futures Z08 (Dec 2008), Nymex

Light Crude Futures Z09 (Dec 2009), Nymex Light Crude Futures Z10 (Dec 2010), Nymex Light Crude Futures Z11 (Dec 2011), Nymex

Source: Reuters EcoWin

January06

February March April May June July August September October NovemberDecember

Pric

e

55.0

57.5

60.0

62.5

65.0

67.5

70.0

72.5

75.0

77.5

80.0

Global oil consumption has risen

Millions of barrels per day, annual figureWorld Consumption of Oil

Source: Reuters EcoWin

96 97 98 99 00 01 02 03 04 05

Barr

els/

Day

(mill

ions

)

67

68

69

70

71

72

73

74

75

76

77

78

Driven by China

Million barrels of oil per day, source: International Energy AgencyChina's Consumption of Oil

Source: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q402 03 04 05 06

Barr

els/

Day

(mill

ions

)

4.5

5.0

5.5

6.0

6.5

7.0

7.5

And other BRICs

Million barrels per dayOil Consumption - Brazil

Source: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q402 03 04 05 06 07

Barr

els/

Day

(mill

ions

)

1.95

2.00

2.05

2.10

2.15

2.20

2.25

2.30

But Brazil is also raising output

Million barrels per dayOil Consumption and Production - Brazil

Consumption ProductionSource: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q402 03 04 05 06

Barr

els/

Day

(mill

ions

)

1.7

1.8

1.9

2.0

2.1

2.2

2.3

Oil Production

Oil Consumption

Gas guzzlers in America!

Millions of barrels per day, data for 2006 and 2007 is a forecastUSA Oil Consumption

Source: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q402 03 04 05 06

Barr

els/

Day

(mill

ions

)

19.50

19.75

20.00

20.25

20.50

20.75

21.00

21.25

OPEC has stabilised production

Million barrels per dayTotal OPEC Crude Oil Production

Source: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q300 01 02 03 04 05 06

Barr

els/

Day

(mill

ions

)

24

25

26

27

28

29

30

31

Saudi Arabia has squeezed supply

Quarterly oil production in millions of barrels per day, source: International Energy AgencySaudi Arabia Oil Production

Source: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q302 03 04 05 06

Barr

els/

Day

(mill

ions

)

7.00

7.25

7.50

7.75

8.00

8.25

8.50

8.75

9.00

9.25

9.50

October 2006 – OPEC announces a cut in oil production

• “OPEC Member Countries have decided to reduce their crude oil production in a bid to bring global oil supply more in line with actual demand.

• OPEC has agreed to cut output from the Organization, excluding Iraq, by 1.2 million barrels/day, effective November 1st 2006

• OPEC is concerned that global crude oil supplies were well in excess of demand, as the above average level of crude oil stocks in OECD countries demonstrated.

• They observed that the oversupply situation and imbalance in supply and demand fundamentals had destabilized the market.”

• Source: OPEC Observer

World crude oil stock levels

Billion barrelsStock Levels of Oil

Industry Stocks, Pacific, Crude Industry Stocks, OECD, Crude

Industry Stocks, North America, Crude Industry Stocks, Europe, Crude

Source: Reuters EcoWin

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul02 03 04 05 06

Barr

els

(bill

ions

)

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

North America

Europe

Pacific countries

All OECD countries

OPEC is now looking for quota cuts

Million barrels per dayOPEC Production Quotas

OPEC production quota, Algeria OPEC production quota, Indonesia OPEC production quota, Iran OPEC production quota, Iraq

OPEC production quota, Kuwait OPEC production quota, Libya OPEC production quota, Nigeria OPEC production quota, Qatar

OPEC production quota, Saudi Arabia OPEC production quota, UAE OPEC production quota, Venezuela

Source: Reuters EcoWin

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep04 05 06

Barr

els/

Day

(mill

ions

)

0

1

2

3

4

5

6

7

8

9

10

But OPEC output is below capacity

Million barrels per day, source: International Energy AgencyOPEC Crude Oil Production against Capacity

Total OPEC Crude Output OPEC Sustainable Production CapacitySource: Reuters EcoWin

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q302 03 04 05 06

Barr

els/

Day

(mill

ions

)

24

25

26

27

28

29

30

31

32

33

Total Crude Production

Sustainable Production Capacity

OPEC’s share of world production

per centOPEC's percentage of total world oil output

Source: Reuters EcoWin

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Perc

ent

37

38

39

40

41

42

43

OPEC

• OPEC is a permanent, intergovernmental Organization, established in 1960

• Its objective is to coordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

• The Organization now comprises 11 Members

High oil prices – little impact on world inflation – yet!

Annual % change in consumer prices, source: International Monetary Fund (IMF)World Consumer Price Inflation and Oil Prices

Energy, Oil, Crude Oil/Petroleum, USD Interest rates prices, production or labour, Consumer prices, CPI % CHANGESource: Reuters EcoWin

00 01 02 03 04 05 06

Perc

ent p

er A

nnum

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

World Consumer Price Inflation

USD

/Bar

rel

10

30

50

70Average world crude oil price

Suggestions for more research

• OPEC• International Energy Agency• BBC news

– Oil prices rise on Opec cut news (Dec 2006)– Oil up as Opec plans output cut (Oct 2006)– Oil markets explained (March 2003)

• Guardian special reports on oil