crudeoilusdforecast
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Crude Oil/USD
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Agenda1.Introduction2.Supply & Demand
3.US Economy & Dollar Devaluation4.Paper Trading
5.Risk Premium
6.Forecast
7.Will OPEC change USD denomination of oil?
8.Key Takeaways
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Oil Supply
OPEC
! Cartel of 12 countries :Algeria,Angola, Ecuador, Iran, Iraq,Kuwait, Libya, Nigeria, Qatar,
Saudi Arabia, UAE, Venezuela
!To regulate supply and price of oil! Produced 42% of the world's oilproduction
!Account for 78% of worlds provenoil reserve
! OPEC Production Allocation
Oil Producers
!Russia and Saudi Arabia produced25% of worlds oil production
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Oil SupplyFactors affecting Supply
!Oil Demand! OPEC policy! Unforeseen Situations (E.g. Damage Oil Facilities, War)
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Production cut by OPEC
Unforeseen Situation
Pipeline Closure
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Oil Demand
Factors affecting Demand
GDP growthSeasons of the Year
Demand for Petroleum-based product (e.g. Heating oil, Gasoline)
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Oil DemandWorld GDP
0.7166Developed GDP
0.6757Developing GDP
0.7617Emerging market GDP
0.7770
World Production0.5646
Opec Production0.5384
Non-Opec Production0.5319
World Consumption0.5815
OECD Consumption0.3489
Non OECD Consumption0.7229
World Reserves0.5184
OPEC Reserves0.3367
World Inventories (Year end)0.6299
Average Inventories0.6224
GDP! Strong positive correlation (r =0.71) between WorldGDP and oil price
! Emerging countries has a higher correlation, r = 0.78
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US Economy & Dollar Devaluation
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!GDP!!Unemployment rate!!National debt!!Interest rate!!Inflation rate!!Trade!
Dollar Value Determinants
US Dollar Strength
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- Increased 1.6% in Q2!
- 9.6% in Sep 2010!
- Over $13 trillion!- 89% of GDP in Q1!
US Economic Growth
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US Economic Growth
- Benchmark interest rate: 0.25%!
- Inflation rate last reported at
1.1% in Aug 2010, down from a
peak of 5.6% in Jul 2008!
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US Trade
Main Imports !!F u e l s !!Non - auto con sum e r
goods !!P roduct i on
m ach i n e ry &e qui pm e n t !
!Non - fue l i n dustr i a lsuppl i e s !
!Motor ve h i c l e s &p a r t s !
!Food, fe e d , be ve rage s !
Main Exports !!Mach i n e ry &
Equi pm e n t !!In dustr i a l Suppl i e s !!Non - auto con sum e r
goods !!Motor ve h i c l e s &
p a r t s !!A i rcra f t & par ts !!Food, fe e d , be ve rage s !
Main TradingPartners !!C an ada!!Europe an Un i on !!Me x i co !!C h i n a!!Japan !
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US Trade- Increased to $123 billion in Q2
from $109 billion in Q1!
-!Trade deficit dropped 14% to $42.8billion in July 2010!-!Total July exports rose 1.8% to $153.3billion!- Total Imports fell 2.1% to $196.1
billion!
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Expansionary monetary policyresults in an economy based largely on debt
Increase in money supplyleads to dollar decline
To bring trade imbalance under control
Leads to higher commodity prices
Recent Federal Reserve rate cuts to boost US economy accelerated dollar devaluatio
Investors move capital out to avoid losses leading to further dollar declineRecent FOMC meeting: Fed may add new stimulus measures to boost sluggish
economy (quantitative easing)High unemployment rate at 9.6%
Weak housing market
US MonetaryPolicy
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Heavy reliance on fiscal policy during latest recession
Huge stimulus bill: American Recovery & Reinvestment Act (2009)
$787 billion in personal & corporate tax cuts
Increased federal aid & direct federal spending
Federal revenues falling due to recession & ARRA tax cuts
Increased fiscal deficits associated with depreciating exchange rate
US Fiscal Policy
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The Dollar Index
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Impact of Dollar Devaluation
I/ SHORT TERM IMPACT
Increased speculation and investment in oil futures:Hedge against weakening dollarHigh profit potential
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Impact of Dollar Devaluation
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What caused the abnormalities in price?
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Consumption: ~ 86 mb/d
Production: ~ 86 mb/d
USDX: decrease ~ 12%
Oil Price: Quadruple - 400%Oil futures traded volume nearly quadruple from 4.5 -> 15.3
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ICE employed partialelectronic trading on November 1, 2004and shifted its benchmark ICE Brent crude to an all-electronicformat on April 7, 2005
NYMEX started electronic WTI futures in 2006
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The burst of oil bubble?
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Declining world oil demand and increasing non-OPEC production OPEC cut
output significantly in the first half of the 1980s to defend its official price
Saudi Arabia bore most of the production cuts (from over 10 million barrels
per day for the period Oct 1980 through Aug 1981 to just 2.3 million by
Aug 1985)
Late 1985, Saudi Arabia increased production, and aggressively moved to
increase market share.
In response, other OPEC members also increased production and offered
netback-pricing arrangements to maintain market share and to offset
declining revenues.
These actions resulted in a glut of crude oil in world markets, and crude oil
prices fell sharply in early 1986.
1986 Oil Price Collapse
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One-week Forecast
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One week Forecast
Support
Resistance
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O th F t
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One-month Forecast
Support
Resistance
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Changes in the spot price are unpredictable, so the bestforecast of the future spot price of the crude oil is simply the
current spot price.
Price volatility: SD = 17.67
Price Range: $47.72 - $118.40
Price:
$83.06
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Its an ideal situation we are in now, says Ali Naimi, Saudi oilminister. Consumers are happy, producers are happy.Companies are investing.
"Energy developments in
2009 were dominated by a
global recession and, later in
the year, a tentative recovery
and we can 't kno w how
durable this recovery will
be," said Tony Hayward, BP's
embattled chief executive
Voser warned ofa
challenging year ahead. So
far in 2010, oil prices have
remained firm, and demand
for petrochemicals has
increased, but refining
margins, oil products demand
and spot gas prices all remain
under pressure, he said.
Socit Gnrale SA cut its oil price forecast $88 a barrel for 2011to $85 as demand growth slows and production outside OPECexpands.
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