Presentation on theme: "Economic Summit Recent decline in oil prices March 6, 2015 Reza Varjavand Associate Professor of Economics GSM, Saint Xavier University."— Presentation transcript:
Economic Summit Recent decline in oil prices March 6, 2015 Reza Varjavand Associate Professor of Economics GSM, Saint Xavier University
US crude oil market, facts and figures The US is the biggest consumer, importer, and now the leading producer according to many analysts Total spending on crude oil = 8.5% of GDP, $1.5 trillion Daily consumption of 20 million barrel, almost 45% domestic production and 55% imported (74% from Canada, Mexico, Venezuela, and Saudi Arabia) The US domestic production almost doubled since 2008 to about 9 million barrel/day The booming shale oil industry accounts for 3.5 million barrel/day, nearly 40% of domestic production and 17.5% of total consumption Crude oil is still the number one source of energy in the US, 36% of total With surge in domestic production and import from non-OPEC sources, the US dependency on Middle Eastern oil is diminishing.
Recent decline in price of crude oil The contributing factors: Demand related Supply related Product related Strength of US dollar Changes in consumers priorities Popularity of services Environmental and fuel efficiency concerns Geopolitical factors including conflict of interests among OPEC nations
Effects of falling oil prices on the US economy Dropping prices signify a mixed blessing for the economy, there are many gainers and a few losers. US consumers are the biggest gainers, aggregate and per household Manufacturing sectors: automobile, transportation, airline, and other businesses Shale oil industry and its future economic viability Effects on different states and the US economy as a whole
Oil consumption goes hand-in-hand with economic growth
Breakeven Prices for different kinds of crude oil
Possible policy implication Low prices may strengthen the need for reforms in energy policy: Restrictions on exports Subsidies and tax incentives to oil companies and ethanol-producing farmers Using taxes instead of subsidies to promote cost awareness and to regulate consumption Viability of the Keystone pipeline project
Possibility of price rebound Expectations of economic recovery worldwide OPEC acting as an collaborative oligopoly (cartel) again, member nations may change their strategy and their attitudes toward one another Law of demand and supply becomes relevant instead of geopolitical factors Increasing world's stockpiles of crude oil
Effects of low prices on oil-exporting nations Saudi Arabia Russia Iran Venezuela Nigeria
Structure of crude oil market Size, about 90 million barrel/day production (each barrel contains 42 gallons) Stages of operation: Exploration, Development, and Production The types of benchmark crude Oil: WTI, West Texas Intermediate, for the US domestic producers and Brent for the global market. Key producers in global market: USA, Saudi Arabia, Russia, China, and Canada, the share of top ten producers = 64% of total. OPEC share is currently 40% of the world market. Non-OPEC producers 48% and t he US share is about 12%, 7 Companies dominating the global oil market: BP, Gulf, Standard of CA, Chevron, Shell, Standard of NJ, Exxon.