university-logo World Demand and Supply Other Supply Responses Oil Demand, Supply, and Medium-Term Price Prospects A Wavelet-Analysis Approach Mahmoud A. El-Gamal & Amy Myers JaVe Rice University University of California at Davis June 12, 2013 Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 0/30
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Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 21/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Saudi Arabia: Responding to Economics (Mexico & UK)To Prevent Prices from Falling Too Fast
2040
6080
1970 1980 1990 2000 2010
2000
4000
6000
8000
10000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 22/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Kuwait: Responding to Economics (Mexico & UK) + War
510
15
1970 1980 1990 2000 2010
01000
2000
3000
4000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 23/30
Outline
1 World Demand and SupplySecular Business Cycle and DemandSupply Responses to High & Low Prices
2 Other Supply ResponsesIncorporating HotellingWars and Regime Changes
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Unintentional Supply Disruptions?
Can Saudi Arabia and other major producers reduce output toaccommodate U.S.?
No, for fear of regime changes in the region. They need currentproduction level as well as high prices to meet budgetary andpopulist demands.
If prices fall, reducing revenues significantly, would regime changeresult in output disruption
As we will show, regime change by itself does not lead to jumps tolower Hubbert curve, although they may prevent jumps to higherones
War, on the other hand, destroys facilities and leads to supplydisruptions
Is the status quo with threat of spreading war (i.e. Syria) the bestscenario for major producers?
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 25/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Unintentional Supply Disruptions?
Can Saudi Arabia and other major producers reduce output toaccommodate U.S.?
No, for fear of regime changes in the region. They need currentproduction level as well as high prices to meet budgetary andpopulist demands.
If prices fall, reducing revenues significantly, would regime changeresult in output disruption
As we will show, regime change by itself does not lead to jumps tolower Hubbert curve, although they may prevent jumps to higherones
War, on the other hand, destroys facilities and leads to supplydisruptions
Is the status quo with threat of spreading war (i.e. Syria) the bestscenario for major producers?
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 25/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Unintentional Supply Disruptions?
Can Saudi Arabia and other major producers reduce output toaccommodate U.S.?
No, for fear of regime changes in the region. They need currentproduction level as well as high prices to meet budgetary andpopulist demands.
If prices fall, reducing revenues significantly, would regime changeresult in output disruption
As we will show, regime change by itself does not lead to jumps tolower Hubbert curve, although they may prevent jumps to higherones
War, on the other hand, destroys facilities and leads to supplydisruptions
Is the status quo with threat of spreading war (i.e. Syria) the bestscenario for major producers?
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 25/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
The EVect of War on Iran
010
2030
4050
1970 1980 1990 2000 2010
1000
2000
3000
4000
5000
6000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 26/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
The EVect of Wars on Iraq
010
2030
40
1970 1980 1990 2000 2010
500
1000
1500
2000
2500
3000
3500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 27/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Regime Change Did Not Disrupt Venezuela’s Production
2040
6080
100
120
1970 1980 1990 2000 2010
500
1000
1500
2000
2500
3000
3500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 28/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Libya: Regime Insanity and Quasi-War
1020
3040
1970 1980 1990 2000 2010
01000
2000
3000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 29/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.