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OIL CONCERNS
OIL CONCERNS
Major Factors Causing Oil Price Fluctuations
Aminata KaHassana Issoufou AdamAbdullah KhanIsabell Schulz14/11/07International Economics
Why Concentrate On Oil Issues?
Oil is a natural resource that represents our premier source of energy
Black gold as it is referred, this resource has been behaving with fairly volatile prices
And factors of change being both predictable and unpredictable
May 2004:
The price of oil hits $40 per barrel. OPEC has raised oil
production but not enough to outweigh the uncertainty created by
the threat of terrorism in oil-producing countries, the high demand
for oil, and the low U.S. oil inventories. The increasingly gloomy
fate of Yukos in Russia, responsible for two per cent of the
world's oil supply, further destabilizes markets.
October 2004:
The price of oil hits over $50 after a general workers strike in
Nigeria and low crude output in the Gulf of Mexico in the aftermath
of hurricane Ivan.
July 2005:
The price of oil hits over $60. Analysts say it's fuelled by
increased demand, especially in China, and limited U.S. refining
capacity. The tension over Iran's nuclear program causes more
market jitters. The only OPEC country with spare production
capacity is Saudi Arabia.
August 2005:
Oil prices top $70 US a barrel after hurricane Katrina hits the
eastern coast of the Gulf of Mexico. Katrina squeezes oil
inventories by disrupting offshore drilling.
January 2006:
After a drop in the fall, prices surge back to more than $65 US a
barrel as tension mounts in oil producers Iran and Nigeria. The
United Nations ponders sanctions against Iran for its nuclear
program, while militants block Nigeria's oil supply.
April 2006:
Oil futures rise to more than $70 US a barrel again, after reports
from the U.S. that gasoline inventories are down more than
expected. Unrest in Nigeria and uncertainty about the international
reaction to Iran's nuclear program also affect prices.
2006 Oil Data
Where are the Worlds oil reserves?
(Both OPEC and Non OPEC Members)
What Causes Oil Price Fluctuations?
Basics of Supply and Demand
Like any other market, the oil market is governed by the market demand and supply.
For instance emerging countries such as China and India, have joined the US in the top oil consuming nations causing demand to stretch supply, sometimes exceeding it.
The OPEC cartel on its part has been imposing production quotas in order to keep high profits in trying to control the market
Non OPEC members have minimal impacts on world oil prices
Growing World Energy Demand
*Data projection from 2004 to 2030
Example of growing oil demand
What causes oil price fluctuations? (Contd)
War
Strikes(labor disputes)
Halting TransportFrom oilproducers
Bad Weather
AccidentsAndNaturaldisasters
Market speculations
Taxes
Price of Oil
Oil in Geopolitics
Reasons for price fluctuations are also political
Many oil producing countries find themselves exposed to political risk due to instability (Ex: Sudan, Iran, Nigeria)
Oil has been used as a mean of leverage in order to attain political or economic objectives (ex: Russia)
It has also increased the power relations among nations
Common Problems in Nigeria
Affecting Oil
Leading oil exporter in Africa
11th largest producer of crude oil in the world
5th biggest source of U.S oil imports
Poverty
most people are struggling to survive on less than $1 a day
Social, Political and Economical Instabilities
difficult country to govern and control
300 different ethnic groups
Common Problems (contd)
Difference between Muslims and Christians divided into communities and trying to impose their belief into their legal system
Governed by military
Presence of multinational oil companies also affect local economy and society
ex: Shell
Angolas Political, Economical, Social Problems and Paradox
Important producer, oil was protected from civil war for 30 years because most oil deposits are off shore.
In fact:
Absence of any other viable political party
Government policies wanted all enterprises under state's control
The economy is slowing down, except for oil sector
contd
Oil revenue are used to subsidize consumption or invested in enterprises that become viable
Oil have been spent financing war and lining the governments pocket
The oil installations was usually sabotaged
An independence movement has been operating in the major oil producing areas
Agriculture has been undermined by the fighting and mines
Increase of Oil
Spring and summer 2005
$50/barrel
Winter 2005 2006 increase
$ 60.30/barrel
violence in Nigeria
Irans friction with the west
Spring and summer 2006 increase
$ 79/barrel
Hostilities in Nigeria alone have caused a supply disruption, only 26% was produced
Increase of Oil (contd)
Last summer 2006 decreases
$ 66/ barrel
Spring / summer 2007 increases
$ 73.93/ barrel
Based on civil unrest in Nigeria
Facts Concerning Venezuelan Oil ProductionProven crude oil reserves: 87.04 billion barrels
Fifth largest oil producer
largest reserves of conventional oil in the western hemisphere
largest reserves of non-conventional oil in the world
Current production: 3.1 million bbl/d
Crude oil exports 1.735 million bbl/d
Oil products 90% of exports (30% of GDP)
Venezuela
Strike in 2002/03 at PDVSA
Immediate production dropped from 3 million bbl/d to 600,000 bbl/d
December 2002 increase by 48 cents to $28.92/bbl
Political Situation unstable flow of oil
re-election December 2006
Control 60% of the multinational-dominated Orinoco enterprises
Diversification as a new strategy
Venezuela Politicisation of Oil
Reduce dependence from abroad
OPEC
promoting government-to-government ties
strengthening OPEC
First South American Energy Summit 2000
Price band: $22 - $28 per barrel
Re-nationalisation of PDVSA
Discount-price for Caribbean countries
Control of companies in Orinoco oilfields
China's Increasing Demand for Oil
Second largest oil consumer
8% economic growth rate for next 5 years
Fixed exchange rate against USD
2003
40% of world oil demand growth over past 4 years
Consumption 5.6 million bbl/d
2025
Consumption of 12.8 million bbl/d
Net imports of 9.4 million bbl/d
China's Increasing Demand for Oil
Supply/demand imbalance
M
Global Campaign
Co-operations with foreign oil producers
African countries (10% of world oil production)
Increasing dependence on Middle Eastern oil
Venezuela China Agreement
Supply to China
1 million bbl/d by 2012
15% of China's present consumption of oil
One third of Venezuela's current oil production
Future
CNPC activities increasing in Orinoco Strip
Build refineries in China
Joint enterprise
Oil as a Political Weapon: Russia
Worlds largest non-OPEC producer
2nd largest oil exporter
Russia-Belarus Dispute
Oil price increase to $57,17/bbl (from $55/bbl)
Outcome
$100 per 1000 m of gas
Sell Gazprom 50% of national gas supplier Beltransgaz
Gradual increase market price by 2011
Transit fees increase by around 70%
Oil Price Increase of 2005-2007
Put just the graph, delete the other slides just describe the graph
2007 at a Glance
Pipeline Disruptions
Tensions in Turkey
No Oil Productions & Exporting Cartels Act
OPEC decreases production
Effects
Expected recession of the early 80s
Apache and Conoco-Phillips rose sharply
Dollar value, exchange rates and metals
Europe, prices of transport fuels are made up of the price of the refined product, plus a substantial tax element
Oil shortage in Asia prior to Hurricane Katrina
Effects (contd)
Oil prices & Developing Countries
Zimbabwe, Eritrea and Tanzania with higher prices
Hugo Chvez Strategy
Boom in Persian Gulf States and Eurasian Arab-Islamic regions
What Would $120/barrel Mean?
Demand Effects
Spending Power would fall
Supply Effects
Company Profit Margin fall
Policy Effects
Price wage spiral
Effects on Confidence & Financial MKT Psychology
Higher prices hurt consumer confidence & investor confidence
Are We Looking Into Alternatives
For Oil?
Other sources of energy include:
Hydro-electric power
Wind and wave power
Solar power
Biofuels (ethanol: made from corn, sugar cane, switchgrass and other crops )
Biomass
Biogas
Biodiesel
Share of renewable energies in primary energy consumption of
European Union countries in 2005
(in %)
Thank You for Your Attention!
Back-Up Slides
Factors Disturbing Oil
Turbulance in Middle East
Instability in Venezuela & West Africa
Terrorists & Insurgent groups adding a premium
Natural Calamaties
Speculation on Oil
Sources of light sweet crude almost exhausted
OPEC control & oligopoly of major oil companies
OPEC Members
*founder MembersSouth America1960Venezuela*Middle East1967United Arab EmiratesMiddle East1960Saudi Arabia*Middle East1961QatarAfrica1971NigeriaAfrica1962SP Libyan AJMiddle East1960Kuwait*Middle East1960Iraq*Middle East1960IR Iran*Asia1962IndonesiaAfrica2007AngolaAfrica1969AlgeriaLocationJoined OPECCountry
Effect of taxes comparing France, UK, US
http://www.dgtpe.minefi.gouv.fr/etudes/doctrav/october-2005.pdf