Crude Oil Production & Price Jon Laidlaw Lewis University Graduate School of Management
Crude Oil Production & PriceJon LaidlawLewis University Graduate School of Management
Global Supply and Demand for
Crude
“In the long run, oil is about as purely elastic a commodity as there is,
every movement on the production and consumption sides is reflected
in the price.” –(Investopedia, 2015)
United States overtakes Russia as world’s largest oil and natural-gas
producer in 2015
“Implications of the shale revolution for the U.S. are profound.”
Allowing the world’s largest economy to reduce imports, contributing to the slump in global energy prices
Oil Producing Nations (EIA, 2013)
OPECThe organization of Petroleum Exporting Countries
Established 1960, Baghdad Conference by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela
Later joined by nine others: Qatar (1961), Indonesia & Libya (1962), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), and Gabon (1975)
Source: OPEC.org
The bottom falls out
In 2014, OPEC producers continually increase output while facing pressure from increasing U.S. shale production, resulting in global oversupply. Crude prices begin to drop.
Domestic Crude Oil Production
Data
Rig count: Baker Hughes; U.S. total rig count
Total Crude Production: EIA Weekly Petroleum Status Report
WTI Price: Federal Reserve (FRED)
West Texas Intermediate; spot price
U.S. benchmark (Global benchmark: Brent Crude)
0.00
20.00
40.00
60.00
80.00
100.00
120.00
0
2000
4000
6000
8000
10000
12000
1 5 9
13
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97
10
1
10
5
10
9
11
3
11
7
12
1
12
5
12
9
13
3
13
7
14
1
14
5
14
9
15
3
15
7
WTI Price vs. Rig Count & Production
Rig count Production WTI Price
A Simple Model: Predicting the
Price of WTI Given Two InputsSUMMARY OUTPUT
Regression Statistics
Multiple R 0.86859
R Square 0.75445
Adjusted R Square 0.75132
Standard Error 11.25547
Observations 160
ANOVA
df SS MS FSignificance
F
Regression 2 61111.04 30555.52 241.19 0.0000
Residual 157 19889.65 126.69
Total 159 81000.69
CoefficientsStandard
Error t Stat P-value Lower 95%Upper 95%
Lower 95.0%
Upper 95.0%
Intercept 124.0594 12.6744 9.7881 0.0000 99.0250 149.0938 99.0250 149.0938
Rig count 0.0379 0.0031 12.1423 0.0000 0.0317 0.0440 0.0317 0.0440
Production -0.0107 0.0012 -8.8485 0.0000 -0.0131 -0.0083 -0.0131 -0.0083
We Can Now Derive a Formula for
The Price of Crude
Price(WTI) = 124.059 + 0.038*RigCount – 0.011*TotalProduction
A simple hypothetical, given data from 11/20/2015:
Rig count: 564
Total Production: 9165
Price(WTI) = 124.059 + 0.038*564 – 0.011*9165
= $44.676
What was the spot price of WTI on 11/20/15?
$41.54
Our Model was Fairly Accurate!
We can probably construct a better model!
Data set included more inputs that we could use as predictors
Run regression to see if we can create an even better model
Net Imports
Stock Change
Refinery inputs
Crude Oil Stocks
Links to references
U.S. Ousts Russia as Top Oil & Gas Producer (Bloomberg, 2015)
Oil Price Analysis: The Impact of Supply & Demand (Investopedia)
Wikipedia: List of countries by oil production
Data from GitHub
Weekly data from November 2012 – December 2015
Questions?
Thanks!