mine yucel - monterrey 2016

Federal Reserve Bank of Dallas

The Oil Market: From Boom to Gloom

Mine Yücel Senior Vice President and

Director of Research


GIC Presentation, February 1, 2016

Monterrey, Mexico


Oil prices plunge

0

20

40

60

80

100

120

140

160

2000 2004 2008 2012 2016

Nominal price, dollars per barrel, weekly

West Texas Intermediate oil price

$31.35

NOTE: Final data point is the average of daily prices from Monday 1/25/16 to Thursday 1/28/16. SOURCE: Energy Information Administration.


Current oil prices not a record low Real prices of crude oil (December 2015 dollars)

SOURCES: Bureau of Labor Statistics; Energy Information Administration; FRB Dallas calculations.

0

20

40

60

80

100

120

140

160

1977 1984 1991 1998 2005 2012

Refiners' acquisition cost of crude

Real price, dollars per barrel

Federal Reserve Bank of Dallas SOURCE: Energy Information Administration.

Supply/demand mismatch

-1

0

1

2

3

4

75

80

85

90

95

100

2012 2013 2014 2015 2016 2017

Implied change in inventories

Petroleum consumption

Petroleum production

Million barrels per day Million barrels per day

Forecasts


U.S. and OPEC keep oil market oversupplied Growth in oil production, January 2014-October 2015

SOURCES: Energy Information Administration; Oil Market Report.

1.32

1.08

0.45

0.16 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

U.S. Iraq Saudi Arabia Other OPEC

Million barrels per day


Why the recent slide in prices?

• Iran comes into the market • U.S. output stronger than expected • Concerns about Chinese demand

– The big picture from the oil data: healthy consumer, sick manufacturing

• December unusually warm – Heating degree days (HDD) in the NE US were 33%

below their 10-year average in December.

• Weather forecasts adding downside risk to prices – High likelihood of warm weather in various parts of

the OECD through 2016Q1.


IMPACT ON U.S. ECONOMY


U.S. oil production

SOURCE: Energy Information Administration.

0

2

4

6

8

10

12

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Million barrels per day

2015 average


U.S. crude oil production from shale


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan2010

Nov2015

Jan2010

Nov2015

Jan2010

Nov2015

Thousand barrels per day

North Dakota

Texas

1,098

3,401

1,169

236

786

1,652

Utah Colorado Wyoming

New Mexico

Oklahoma

Montana Kansas


Oil production levels off

SOURCES: Baker Hughes; Energy Information Administration.

600

800

1,000

1,200

1,400

1,600

1,800

2,000

6.9

7.4

7.9

8.4

8.9

9.4

9.9

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16

Million barrels per day Rig count

Crude oil production U.S. rig count


300

350

400

450

500

550

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

5-year range

2015

2014

5-year average

Million barrels


Crude oil inventories at 80-year highs


Drilling investment falls with rig count Private fixed investment in mining/exploration

SOURCES: Baker Hughes; Bureau of Economic Analysis.

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bln chained 2009 $ Rig count

Investment in mining/exploration

U.S. rig count OPEC decision


Impact on U.S. economy

• The U.S. benefits from lower oil prices

• Boosts consumer disposable income – PCE growth: 3.6% in 2Q and 3.2% in 3Q 2015

– Auto sales up 9% in 2015

• Reduces the cost of energy to firms

• Reduces profitability of producing oil – Layoffs, capex declines and bankruptcies in oil patch

• A 50% fall in oil prices may lead to a 0.3% to 1.0% increase in GDP (depending on the model)

• Headline inflation falls


IMPACT ON STATE ECONOMIES


Low oil prices benefit most states (Effect of a 50% decline in oil prices on employment)

SOURCE: “The Shale Gas and Tight Oil Boom: U.S. States’ Economic Gains and Vulnerabilities,” by Stephen P.A. Brown and Mine K. Yücel, Council on Foreign Relations, Energy Brief, Oct. 2013.

-2.0

-4.3

-2.3 -0.7

-1.2 -1.6

-1.7

-0.7


Energy states doing well in 2014

SOURCE: Bureau of Labor Statistics.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

ND FL TX GA

UT

NV

OR

CO

WA

CA

NC SC AR

AZ

TN U.S

.D

E ID KY

MA LA WY

MI

WI

OK

NY

AL

NM

MD CT IN IA KS

OH

NH

MN RI

PA IL VT

AK

VA SD MO NJ

NE

MS

MT

ME HI

WV

Texas

U.S.

Percent change (Dec/Dec)


Energy states lose jobs in 2015

SOURCE: Bureau of Labor Statistics.

-5

-4

-3

-2

-1

0

1

2

3

4

5

ID SC UT FL CA

WA

OR HI

AZ

TN SD GA

MA KY

MD

NC

NV IN MI

U.S

.C

O RI

NY

DE IA NJ

AR

VA

OH

MN NE

ME

TX CT

AL

MO

MS

WI

VT

PA

MT

NH KS

NM IL AK

OK LA WV

WY

ND

Texas U.S.

Percent Change (year-to-date)


Rig counts still falling

NOTE: Last data point is January 22nd. SOURCE: Baker Hughes.

0

100

200

300

400

500

600

700

800

900

1,000

0

40

80

120

160

200

240

2012 2013 2014 2015

Oklahoma

Texas

Louisiana

North Dakota

Rig count, weekly Rig count, weekly

Federal Reserve Bank of Dallas SOURCE: Bureau of Labor Statistics.

0

20

40

60

80

100

120

140

160

180

2013 2014 2015

Index, Jan. 5 '13 = 100, 4 WMA

North Dakota

Oklahoma

Texas

Louisiana U.S.

Initial jobless claims still high


Some states rely heavily on oil and gas severance taxes

(Share of 2014 state tax revenues)

SOURCE: U.S. Census Bureau, 2014 Annual Survey of State Government Tax Collections.

72.4

53.8

39.0

18.5

10.9 8.9 7.5 2.1 0.0

0

10

20

30

40

50

60

70

80

AK ND WY NM TX LA OK CO CA

% Taxes Collected

Percent


WHERE DO WE GO FROM HERE?


NOTE: Other liquids production growth consists primarily of production growth of natural gas liquids . SOURCE: Energy Information Administration.

Forecast for 2016

-1.0

-0.5

0.0

0.5

1.0

1.5

Y/Y change, million barrels per day

OPEC (+0.51)

OPEC (+0.35)

U.S. (-0.70)

U.S. (+0.27)

Other non-OPEC

(-0.21)

Crude production (-0.4)

Other Liquids Production (+0.62)

World Production (+0.22)

World Consumption (+1.42)


Crude price forecast

0

20

40

60

80

100

120

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17

Historical spot price

STEO price forecast

NYMEX futures price

95% NYMEX futures confidence interval

Dollars per barrel



Oil price outlook very uncertain

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015 2016 2017

OVX (WTI volatility)

VIX (equity volatility)

Annualized percentage points

SOURCES: Chicago Board Options Exchange; Wall Street Journal.


Outlook

• “Lower for longer” outlook for oil prices

• Global GDP growth is expected to rise over time

• Uncertainties abound

• Oil price risks more on the downside in the short run – China, Iran, high inventories

• Energy importers such as the U.S. should continue to benefit from lower oil prices.

• Rough patch for energy-producing countries and states.


The Oil Market: From Boom to Gloom

Mine Yücel Senior Vice President and

Director of Research


GIC Presentation, February 1, 2016

Monterrey, Mexico

mine yucel - monterrey 2016

Documents