ECONOMICS OF OIL

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ECONOMICS OF OIL

• March 3, 2015

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Topics - Economics of Oil

• Price changes over time / Price formation
• World supply and demand
• The U.S. demand and imports
• World proved reserves / Are we running out?
• Components of gasoline price at the pump

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Oil Price Great Price Volatility over Time.
Why?
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External Econo-Political Shocks and Price
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The SR Supply and Demand Elasticity
Inelastic S and D - ED gasoline 0.2 (SR)
- Production constraints (SR) The S and D
shifters? Supply War, embargoes, OPEC, natural
disasters, exploration, fracking. Demand The
business cycle, conservation, and
substitutes Expectations, and speculative
Investors.
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The SR Supply and Demand Elasticity
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Price changes

• Changes in supply or demand have large impact to
  price, small impact to quantity
• Recent changes worldwide
• Recent changes US

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Price changes
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World Oil Supply
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World Oil Supply
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The Worlds Top Producer of Oil is also

• ..the worlds top importer of oil. Why?

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The World Daily Oil Consumption - by Country
(2014), Barrels per Day

• 1   United States 19,400,000  
• 2   China 10,400,000
• 3   Japan 4,367,000
• 4   Russia 2,858,000
• 5   India 2,722,000
• 6   Germany 2,456,000 
• 7   Brazil 2,372,000
• 8   Canada 2,371,000
• 9   Saudi Arabia 2,311,000
• 10   Korea, South 2,214,000  

USA in a class of its own!
Total 91,000,000 bbl/day
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The Volume of U.S. Oil Imports

• Note From 10M Barrels / Day
• to 6.6 M Barrels/Day
• in six years
• U.S. Daily consumption is 19.4M. Barrels/Day

A decreasing dependence on oil imports
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The U.S. Crude Oil Imports- by Country (thousand
barrels per day)

• 2009 2012
• 1. CANADA 1,956 1,938
• 2. MEXICO 1,187 1,096
• 3. SAUDI ARABIA 1,503 989
• 4. VENEZUELA 1,039 965
• 5. NIGERIA 922 771
• 6. ANGOLA 504 449
• 7. IRAQ 627 448
• 8. BRAZIL 231 294
• 9. ALGERIA 312 277
• 10. COLOMBIA 178 254
• 11. RUSSIA 116 232
• 12. KUWAIT 206 185
• 13. ECUADOR 214 174
• 14. AZERBAIJAN 73 75
• 15. CONGO (BR) 67 64

Friends and Foes
The Business Goes On
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Peak Oil
The Hubbert peak theory for any given
geographical area, the rate of petroleum
production tends to follow a bell-shaped
curve. Early (pre-peak), the production rate
increases because the discovery rate and
infrastructure. Later (post-peak), production
declines because of resource depletion.
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Have We Reached the Peak Yet?
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World Reserves
Will the world run out of oil in the next few
decades? No, for two reasons
Rank Country Reserves (MMbbl)
1  Venezuela  298,350
2  Saudi Arabia  268,350
3  Iran  173,625
4  UAE  157,300
5  Iraq  140,300
6  Kuwait  104,000
7  Canada  97,800
8  Russia  80,000
9  Libya  48,014
10  Nigeria  37,200
11  United States  30,529
TOTAL WORLD 1,481,526
Reserves / Daily use _______
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The Price of Gas at the Pump

• 2010 2015

The ones who make the big money are
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• Have an Oily Day!
• Want to learn more?
• www.eia.doe.gov