crudeoilusdforecast

7/29/2019 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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