Oil
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“OIL”
World OIL Consumption WORLD OIL CONSUMPTION
THOUSAND BARRELS PER DAY
30,000.0 Asia & Oceania
25,000.0
North America
20,000.0
Western Europe 15,000.0
Eastern Europe & Former U.S.S.R. Middle East
10,000.0 5,000.0
Africa
0.0 1
2
3
4
5
6
7
8
YEARS 1993-2003
9
10 11
Factors Affecting OIL Prices Economic Growth Exchange Rates Inventories Marginal Producers Lack of Investment Violence in the Middle east
EMERGING CONCEPTS HUBBERT PEAK OF OIL PRODUCTION
•
U.S.A & CHINA (GAS GUZZELRS)
•
Rising oil prices signals that the global economic growth has been more rapid than existing output capacity.
•
To produce one Dollar of GDP Emerging Economies uses more than twice as much oil as developed economies.
Other Concepts • Energy Intensity • Paper Barrels • IVANHOES projections
THE FIVE OIL SHOCKS - AN OVERVIEW
1973-75
1979-81
1990-91
1996-99
2002-05
EVENTS
YOM KIPPUR WAR
IRAN-IRAQ WAR
GULF WAR
DEMAND INDUCED PRICE SURGE
IRAQII
BONDS
6.5%-8.5%
9%-11%13.5%
8%
4.5%-6%
LITTLE CONCERN
STOCK MARKET
AVG STOCK PRICES HALVED OR $600 bn
INVESTOR MOVED TO ENERGY STOCKS
FLUCTUATI NG
HIGH TECH STOCKS IGNORED HIGH OIL PRICES
SKEPTIC
CURRENCY
YEN, DEUTSCHE MARK WEAKENED
CATER BONDS D’MARK GETTING STRONGER
YEN & D’MARK BECOMES STRONG AND THEN WEAKENS
YEN BECOMES STRONG AND D’MARK WEAKENS
DOLLAR DEPRECIAT ES
The effect on interest rates of a change in demand for money: money supply kept at fixed level by the authorities
Rate of interest
MS
r1
r
L' L O Money
Rate of interest
The demand for and supply of money M S' MS
r2
r1
L O
Q2
Q1 Money
Rate of interest
LM
r1 r2
IS1 IS2 O
Y2
Y1
National income
THE UNSOLVED PUZZLE…..
What exactly do oil exporting countries do with their export surplus?
PETRODOLLARS American Politicians & Pundit’s View IMF’S Estimate Surplus as a % of GDP Three options; Spend, Save or Invest.
Spend
Save
Import
Saving Rate is Around 40%
Maintains a Global Demand
PETRODOLLARS
Slowdown in Global Demand
Invest Invest in Global Capital Markets
Push Down Bond Yields In Oil Importing Countries
Finance oil importers CAD
Boosting the Asset Prices
Lending Increase in the Fuel bills back to the consumer
Increase in Demand For Financial Assets
Interest Rate
Global Demand
Oil Price Should Rise (Especially when Prod. is tight)
• Total current account surplus of $500 B • Middle East -25% of GDP,Russia-13% & Vnezuela-18%.
CONTRARY VIEW
Questions?
World OIL Consumption WORLD OIL CONSUMPTION
THOUSAND BARRELS PER DAY
30,000.0 Asia & Oceania
25,000.0
North America
20,000.0
Western Europe 15,000.0
Eastern Europe & Former U.S.S.R. Middle East
10,000.0 5,000.0
Africa
0.0 1
2
3
4
5
6
7
8
YEARS 1993-2003
9
10 11
Factors Affecting OIL Prices Economic Growth Exchange Rates Inventories Marginal Producers Lack of Investment Violence in the Middle east
EMERGING CONCEPTS HUBBERT PEAK OF OIL PRODUCTION
•
U.S.A & CHINA (GAS GUZZELRS)
•
Rising oil prices signals that the global economic growth has been more rapid than existing output capacity.
•
To produce one Dollar of GDP Emerging Economies uses more than twice as much oil as developed economies.
Other Concepts • Energy Intensity • Paper Barrels • IVANHOES projections
THE FIVE OIL SHOCKS - AN OVERVIEW
1973-75
1979-81
1990-91
1996-99
2002-05
EVENTS
YOM KIPPUR WAR
IRAN-IRAQ WAR
GULF WAR
DEMAND INDUCED PRICE SURGE
IRAQII
BONDS
6.5%-8.5%
9%-11%13.5%
8%
4.5%-6%
LITTLE CONCERN
STOCK MARKET
AVG STOCK PRICES HALVED OR $600 bn
INVESTOR MOVED TO ENERGY STOCKS
FLUCTUATI NG
HIGH TECH STOCKS IGNORED HIGH OIL PRICES
SKEPTIC
CURRENCY
YEN, DEUTSCHE MARK WEAKENED
CATER BONDS D’MARK GETTING STRONGER
YEN & D’MARK BECOMES STRONG AND THEN WEAKENS
YEN BECOMES STRONG AND D’MARK WEAKENS
DOLLAR DEPRECIAT ES
The effect on interest rates of a change in demand for money: money supply kept at fixed level by the authorities
Rate of interest
MS
r1
r
L' L O Money
Rate of interest
The demand for and supply of money M S' MS
r2
r1
L O
Q2
Q1 Money
Rate of interest
LM
r1 r2
IS1 IS2 O
Y2
Y1
National income
THE UNSOLVED PUZZLE…..
What exactly do oil exporting countries do with their export surplus?
PETRODOLLARS American Politicians & Pundit’s View IMF’S Estimate Surplus as a % of GDP Three options; Spend, Save or Invest.
Spend
Save
Import
Saving Rate is Around 40%
Maintains a Global Demand
PETRODOLLARS
Slowdown in Global Demand
Invest Invest in Global Capital Markets
Push Down Bond Yields In Oil Importing Countries
Finance oil importers CAD
Boosting the Asset Prices
Lending Increase in the Fuel bills back to the consumer
Increase in Demand For Financial Assets
Interest Rate
Global Demand
Oil Price Should Rise (Especially when Prod. is tight)
• Total current account surplus of $500 B • Middle East -25% of GDP,Russia-13% & Vnezuela-18%.
CONTRARY VIEW
Questions?
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