War Room 24 Jan 2012 Got Oil?

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War Room 24 Jan 2012 Got Oil?

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War Room 24 Jan 2012 Got Oil?. War Room. Monthly macro discussion Using tools in context Update on HiddenLevers Features Your feedback welcome. Got Oil?. Oil Technicals Oil Fundamentals Macro – Iran, the West + Asia. HiddenLevers. Oil – Technicals. Oil Shocks + Recessions - Link. - PowerPoint PPT Presentation

Transcript of War Room 24 Jan 2012 Got Oil?

Page 1: War Room  24 Jan 2012 Got Oil?

War Room 24 Jan 2012

Got Oil?

Page 2: War Room  24 Jan 2012 Got Oil?

War Room

•Monthly macro discussion

•Using tools in context

•Update on HiddenLevers Features

•Your feedback welcome

Page 3: War Room  24 Jan 2012 Got Oil?

Got Oil?

•Oil Technicals

•Oil Fundamentals

•Macro – Iran, the West + Asia

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OIL – TECHNICALSHiddenLevers

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OIL SHOCKS + RECESSIONS - LINK

1974 – 1980 – 1990 – 2000 (even 2000!) – 2008 no coincidence

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Oil – Technical Outlook

Short Term- autumn rally from $75 to $100- heavy resistance at 100usd mark- oil not backing down from 100usd- as below, so above – 125usd Oil

Long Term- 115usd – Arab spring double top- correction pattern since then- solid support at 92/93usd - break of 92 = oil likely revisits 74usd and below

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Oil – Technical Outlook

EU sanctions against Iran baked in

- 98-99usd on WTI today (24/Jan)

- 110-111usd on Brent (24/Jan)

- Fourth loss in five sessions

What does this tell you?

EU debt overshadows the Iran soap opera!

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OIL – FUNDAMENTALSHiddenLevers

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Oil Trends: WTI Oil vs Brent Oil

WTI and Brent diverged in 2011, but spread has narrowed

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Oil: Top 5 Producers and Consumers

US consumption roughly equals other top 5 combined

Top 5 Oil Producers:

1. Russia - 10.3M bpd

2. Saudi Arabia - 10M bpd

3. USA - 7.5M bpd

4. Iran – 4.2M bpd

5. China – 4.1M bpd

Top 5 Oil Consumers:1. USA – 19.1M bpd2. China – 9.1M bpd3. Japan – 4.5M bpd4. India – 3.3M bpd5. Russia – 3.2M bpd

Source: BP Stat. Review of World Energy 2011

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Oil Fundamentals: Demand

US Demand Trends

International Demand: China + India Auto Markets

Latest EIA / IEA Global Demand Projections

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US Oil Demand Trends

Oil Consumption down since 2005 (pre-recession)

Vehicle-miles down since 2007

Source: US DOT and EIA

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Oil Demand: China + EM Auto

China became #1 auto market in 2009, but still has only 1 cars per 25 people (US almost 1:1)

Source: E2AF.com (Nikkei Business Publications)

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Oil Demand: China + EM Auto

400M cars = 6M bpd oil = 1.5x Iran's production

China now world's largest auto market 25 people/car in China today 65 people/car in India today ~1 person/car in US If China and India rise to 5 people/car, that's 400M

additional cars

Source: NYU Econ Dept, HiddenLevers

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Global Oil Demand Projections

EIA projects 30M bpd demand increase by 2035

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Oil Fundamentals: Supply

US Supply Trends: US growth, Bakken Shale

Global Supply Analysis

Marginal Price of Production Today

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US Oil Supply Growth

US production has risen 1.6M bpd from 2008 lows Bakken growth accounts for 400k bpd of growth If US surpassed old peak over 11M bpd, would still have

to import 8M bpd

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Global Supply Analysis

HiddenLevers analyzed world production data in 2009 and 2011 Classified countries into post-peak or still growing

2009:

14 Countries Growing

With 40% of world oil production

2011:

12 Countries Growing

With 22% of world

oil production

Source: HiddenLevers, BP Statistical Review of World Energy

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Oil Supply: Marginal Production Cost

What does Oil really cost?

Saudi Arabia:$20/bbl

Exxon Mobil: $71/bbl

CERA Research:$60-90 for new offshore, oil sands, etc

Source: SEC 10-K Filings, Cambride Energy Research Associates

Chart depicts CERA-estimated production costs for various regions

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OIL – 2012 MACRO SITUATIONHiddenLevers

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Dec 2011US Decoupling – Dream Killers

• Europe – counterparty risk

• Deflation – USD too strong for growth

• China hard landing – 50% of world econ growth

• Iran + Oil – oil shocks lead to recession

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Embargo against Iran-“EU sanctions aimed at avoiding conflict” – British Foreign Secretary William Hague

- China + India + Russia not joining sanctions = sanctions pitting Asia against the West

Who consumes Iran’s oil?

China 20%Japan 17%India 16%South Korea 9% Asia total 70+ %

EU 20%

Source: Bureau of Labor Statistics

EU sanctions ineffective!

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Consequences:

1. Israel armed conflict just as likely as US

2. China = ex factor – Darth Vader dilemma

3. 200usd potential (WTI)

4. Safety in CAD?

Scenarios – Iran blockade vs Armed conflict

Consequences:

1. World issue, not just the US:1/3 of seaborne oil, 1/5 of total oil trade

2. Blockade requires a US government response

3. US war ships already in gulf – more coming

4. 125-150usd potential (WTI)

Scenario: Iran Blockade of Straits of Hormuz:Current Projected Impact

Oil $100 $125 25%

Airline Traffic Growth 1.24% -3% -4.24%

DOD Budget Growth 2.10% 3% 1%

Tanker Rates $18700 $940 -95%

Durable Goods 12.1% 12.5% 0.4%

Scenario: Armed Conflict with IranCurrent Projected Impact

Oil $100 $190 90%

Airline Traffic Growth 1.24% -11% -12%

DOD Budget Growth 2.10% 5.38% 3.28%

Tanker Rates $18700 $940 -95%

Durable Goods 12.10% 14.7 2.6%

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HiddenLevers - New Features

• Portfolio Stress Test Report v2

• New Asset Types in Screeners

• New currencies added to Scenario Modeling

• PDF visuals improved

Coming soon:

• Fixed Income Support