5. The OPEC story World needs 30 MM b/d of OPEC crude in 2H OPEC production: 29.9 MM b/d average 1Q 29.2 MM b/d in May OPEC June 8 meeting Split interests: haves vs. have-nots No quota adjustment Unilateral production hikes by S. Arabia, others
6. IEA today: tapping strategic stocks Release 60 MM bbl in next month (2 MM b/d) North America 50%, Europe 30%, Asia 20% “…contribute to well-supplied markets and to ensuring a soft landing for the world economy” (Executive Director Nobuo Tanaka) Total storage: 1.6 billion bbl Reassess in 30 days In market by July; Saudi oil can take 3 months
7. Effect of IEA action 2 MM b/d jolt of supply Brent and WTI quickly dropped by 7% Muted (so far) condemnation from OPEC Policy shift: market lever vs. emergency supply
8. Price wild cards Saudi response to IEA stock draw Economic response – especially crisis economies of Europe Dollar vs. Euro Demand response Trader worries about shrunken cushions (inventories and idle production capacity)
11. US oil price WTI discount to Brent was almost $20/bbl yesterday (June 22).
12. US energy demand Assumes real GDP growth of 2% Federal Reserve yesterday lowered GDP growth projection for 2011 to 2.7-2.9% from 3.1-3.3% in April Fed raised unemployment rate projection to 8.6-8.9% from 8.4-8.7% in April
19. Treasury: Percentage depletion=subsidy “The President agreed at the G-20 Summit in Pittsburgh to phase out subsidies for fossil fuels so that the United States can transition to a 21st-century energy economy. Percentage depletion effectively provides a lower rate of tax with respect to a favored source of income. “
20. The Close the Big Oil Tax Loophole Act Foreign tax credit for dual-capacity taxpayers Domestic production deduction (Sect. 199) Current-year expensing of intangible drilling costs (IDCs) Percentage depletion Deduction for qualified tertiary injectants
