6. Oil – Technical Outlook
Short Term
- autumn rally from $75 to $100
- heavy resistance at 100usd mark
- oil not backing down from 100usd
- as below, so above – 125usd Oil
Long Term
- 115usd – Arab spring double top
- correction pattern since then
- solid support at 92/93usd
- break of 92 = oil likely revisits 74usd
and below
7. Oil – Technical Outlook
EU sanctions against Iran baked in
- 98-99usd on WTI today (24/Jan)
- 110-111usd on Brent (24/Jan)
- Fourth loss in five sessions
What does this tell you?
EU debt overshadows
the Iran soap opera!
9. Oil Trends: WTI Oil vs Brent Oil
WTI and Brent diverged in 2011, but spread has narrowed
10. Oil: Top 5 Producers and Consumers
US consumption roughly equals other top 5 combined
Top 5 Oil Producers:
1. Russia - 10.3M bpd
2. Saudi Arabia - 10M bpd
3. USA - 7.5M bpd
4. Iran – 4.2M bpd
5. China – 4.1M bpd
Top 5 Oil Consumers:
1. USA – 19.1M bpd
2. China – 9.1M bpd
3. Japan – 4.5M bpd
4. India – 3.3M bpd
5. Russia – 3.2M bpd
Source: BP Stat. Review of World Energy 2011
11. Oil Fundamentals: Demand
US Demand Trends
International Demand: China + India Auto
Markets
Latest EIA / IEA Global Demand Projections
12. US Oil Demand Trends
Oil Consumption down
since 2005 (pre-recession)
Vehicle-miles
down since 2007
Source: US DOT and EIA
13. Oil Demand: China + EM Auto
China became #1 auto market in 2009, but still has only 1
cars per 25 people (US almost 1:1)
Source: E2AF.com (Nikkei Business Publications)
14. Oil Demand: China + EM Auto
400M cars = 6M bpd oil = 1.5x Iran's production
China now world's largest auto market
25 people/car in China today
65 people/car in India today
~1 person/car in US
If China and India rise to 5 people/car, that's 400M
additional cars
Source: NYU Econ Dept, HiddenLevers
15. Global Oil Demand Projections
EIA projects 30M bpd demand increase by 2035
16. Oil Fundamentals: Supply
US Supply Trends: US growth, Bakken Shale
Global Supply Analysis
Marginal Price of Production Today
17. US Oil Supply Growth
US production has risen 1.6M bpd from 2008 lows
Bakken growth accounts for 400k bpd of growth
If US surpassed old peak over 11M bpd, would still have
to import 8M bpd
18. Global Supply Analysis
HiddenLevers analyzed world production data in 2009 and 2011
Classified countries into post-peak or still growing
2009:
14 Countries
Growing
With 40% of world
oil production
2011:
12 Countries
Growing
With 22% of
world
oil production
Source: HiddenLevers, BP Statistical Review of World Energy
19. Oil Supply: Marginal Production Cost
What does Oil
really cost?
Saudi Arabia:
$20/bbl
Exxon Mobil:
$71/bbl
CERA Research:
$60-90 for new
offshore, oil
sands, etc
Source: SEC 10-K Filings, Cambride Energy Research Associates
Chart depicts CERA-estimated production costs for various regions
21. Dec 2011
US Decoupling – Dream Killers
• Europe – counterparty risk
• Deflation – USD too strong for growth
• China hard landing – 50% of world econ growth
• Iran + Oil – oil shocks lead to recession
22. Embargo against Iran
-“EU sanctions aimed at avoiding conflict” –
British Foreign Secretary William Hague
- China + India + Russia not joining sanctions =
sanctions pitting Asia against the West
Who consumes Iran’s oil?
China 20%
Japan 17%
India 16%
South Korea 9%
Asia total 70+ %
EU 20%
Source: Bureau of Labor Statistics
EU sanctions ineffective!
23. Consequences:
1. Israel armed conflict just as likely as US
2. China = ex factor – Darth Vader dilemma
3. 200usd potential (WTI)
4. Safety in CAD?
Scenarios – Iran blockade vs Armed conflict
Consequences:
1. World issue, not just the US:
1/3 of seaborne oil, 1/5 of total oil trade
2. Blockade requires a US government response
3. US war ships already in gulf – more coming
4. 125-150usd potential (WTI)
Scenario: Iran Blockade of Straits of Hormuz:
Current Projected Impact
Oil $100 $125 25%
Airline Traffic Growth 1.24% -3% -4.24%
DOD Budget Growth 2.10% 3% 1%
Tanker Rates $18700 $940 -95%
Durable Goods 12.1% 12.5% 0.4%
Scenario: Armed Conflict with Iran
Current Projected Impact
Oil $100 $190 90%
Airline Traffic Growth 1.24% -11% -12%
DOD Budget Growth 2.10% 5.38% 3.28%
Tanker Rates $18700 $940 -95%
Durable Goods 12.10% 14.7 2.6%
24. HiddenLevers - New Features
• Portfolio Stress Test Report v2
• New Asset Types in Screeners
• New currencies added to Scenario Modeling
• PDF visuals improved
Coming soon:
• Fixed Income Support