Geography 100 – Spring 2012
Nautical Navigation
Navigate a large three-mast, wind-powered sailing ship in 1850 from Plymouth, UK
to Melbourne, Australia. What instruments would they use? How do they use these
navigational instruments? What natural weather and sea conditions would they
likely encounter and how would they safely navigate through them?
http://www.ucalgary.ca/applied_history/tutor/eurvoya/map.html
http://maps.howstuffworks.com/world-prevailing-winds-map.htm
Land Navigation
Trip planning – Given a choice of three world itineraries (U.S., Europe, Asia) and
basic guidelines on travel cost savings, students compete to document the lowest
trip costs while relating what they will experience from their chosen itinerary.
Students will provide a detailed cost matrix and a Google Maps itinerary of the
entire trip.
Gasoline: Factors Driving Prices
How
The nationwide price of self-service regular gasoline in mid-March was about $3.83 a gallon,
including taxes. That’s up about 26 cents a gallon from the same time last year. The U.S. Energy
Information Administration (EIA) expects the regular grade gasoline retail price to average $3.79
per gallon for all of 2012. 1
Oil Prices. Crude oil is refined to make gasoline and, therefore, its price directly impacts the
price of gasoline. When crude oil costs rise, gasoline prices typically follow. Crude oil costs for
U.S. refineries are expected to average about $116 per barrel this month, which is $14 higher
than a year ago. The EIA forecasts that the average crude oil cost for domestic refiners will
average about $115 for all of 2012.
Global Economic and Political Forces. Oil is a major commodity in the global economy, with its
price pushed and pulled by economic and political events occurring all around the world. Today,
the burgeoning economies of China, India, Brazil and several Middle Eastern countries are
consuming oil like never before, putting upward pressure on oil prices. Political events and
uncertainty, such as civil unrest in oil exporter Nigeria, the embargo on Iranian oil sales and
2
turbulence in other Middle Eastern countries are currently pushing oil prices.
Seasonal Factors. Every spring, refineries are retooled for the production of summer gasoline
blends designed to keep emission low. This changeover temporarily tightens gasoline supplies,
which can affect prices. During the April-September period when driving is heaviest, the EIA
forecasts that prices will average about $3.92 per gallon, with a peak monthly average price of
$3.96 per gallon in May
World Oil Consumption. The U.S. accounts for about 18 percent of the world’s oil consumption
and its oil use has remained about the same for the last several years. Gasoline demand has
declined modestly as fuel efficiency of new vehicles has improved and the lagging economy has
affected driving. Oil use elsewhere continues to rise, however, and the EIA expects that world
crude oil and liquid fuels consumption will accelerate from 87.9 million barrels per day (bbl/d) in
2011 to 89 million bbl/d in this year. Demand is expected to reach 90.3 million bbl/d in 2013.
What Really Drives Crude Oil
Prices?
by David Fessler, Investment U Senior Analyst
Thursday, August 25, 2011
According to the U.S. Energy Information Administration, there are seven key
factors that each contribute to and have an influence on the spot price of
crude oil.
Let’s take a look at each one:
1.
Production: The Organization of Petroleum Exporting Countries
(OPEC) consortium is responsible for 40 percent of the world’s oil
production. The oil that OPEC exports represents 60 percent of all of the
oil traded on international markets.Due to the sheer size of OPEC’s
crude supply market share, its actions and even its statements can, and
do, have an effect on world oil prices. OPEC production cuts generally
lead to price increases.
2.
Supply: The non-OPEC suppliers represent 60 percent of the world’s oil
supply. While as a group they’re 50 percent larger than OPEC, nonOPEC producers have virtually no spare capacity.They’re referred to as
“Price Takers.” That is, they respond to market prices rather than
3
attempting to manipulate them, as OPEC does. As a result, non-OPEC
suppliers generally produce at or near full capacity. Any production
lapse generally has the effect on increasing oil supplies. It also gives
OPEC the ability to further manipulate world supplies.
3.
Global oil inventories: Global oil inventories balance supply and
demand. If production exceeds demand, excess supplies can be stored.
The reverse is also true. When consumption exceeds demand,
inventories can be tapped to meet the incremental demand.Without
getting too detailed, the relationship between oil prices and oil
inventories allows for corrections in either direction. If market makers
notice an inventory build, spot oil prices will likely drop in response to
balance demand with supply. Conversely, if oil futures rise in relation to
the current spot price for oil, the impetus to store oil will increase.
4.
Financial markets: Oil brokers don’t just sell physical oil. They also
trade contracts for its future delivery, commonly known as
“futures.”Some customers, like airlines, purchase futures to hedge
against future oil price increases that could have adverse effects on
their ability to operate profitably. Oil producers often sell oil futures
contracts in order to lock in a price for a specific period of time.
5.
Demand: The Organization of Economic Cooperation and Development
(OECD) is made up of the United States, most of Europe, Japan and
other advanced countries. The OECD is responsible for 53 percent of
the world’s demand for oil. While they consume more oil than nonOECD countries, their rate of growth is much slower. During 2000 to
2010, OECD demand actually went down, while non-OECD demand
exploded by 40 percent.
6.
Non-OECD demand: China, Saudi Arabia and India together had the
largest growth in crude consumption among non-OECD countries for the
last decade.The rate at which oil consumption rises in any given country
has a direct relationship to its rate of economic growth. So it comes as
no surprise that for China and India, at least, their use of crude is
4
skyrocketing compared to the United States’. Developing countries also
typically have more manufacturing-related industries, which tends to
support higher crude consumption rates.
7.
Spot market: Crude oil is traded globally, and the many different
“streams” of crude oil tend to move in lockstep with each other regarding
prices.At the refinery, these streams are processed to make the
products we use: gasoline, diesel fuel, heating oil, lubricants, jet fuel and
various other petroleum products. Turn on any financial channel on TV
and you’ll hear the talking heads quoting the price of crude. But what
really matters is the price we pay for the end products.The price of both
crude and the finished products are affected by events that have the
wherewithal to disrupt the flow of both crude and finished products.
These events include hurricanes, geopolitical events, massive oil leaks,
terrorist acts, etc. Since both supply and demand are relatively inelastic,
any of the above events, or the perceived risk of them, can lead to
higher price volatility, especially in the futures market.
It ‘s easy to see given all the factors that affect the price of oil, any shock to
the system can, and has, caused large swings in the price of crude. A lot of
the world’s oil supply is located in parts of the globe that have historically
been prone to political instability. All of this contributes to the volatility and the
ultimate price we pay for oil.
How to Profit From Oil Price Swings
Investors who wish to profit from oil price swings could consider any number
of ETFs tied to the price of crude. The most actively traded ETF is the United
States Oil Fund (NYSE: USO). It trades about eight to nine million shares
per day. It’s not the most efficient at tracking price movements, but its huge
liquidity allows you to move in and out of it with ease.
If you think the price is heading north for the foreseeable future, you might
want to consider the PowerShares DB Crude Oil Long ETN (NYSE: OLO).
Unfortunately, this ETF averages only 14,000 shares traded each day, which
makes it relatively illiquid.
Think oil’s heading south? Consider the ProShares UltraShort DJ-AIG
5
Crude Oil ETF (NYSE: SCO). This is the most actively traded (1.75 million
shares per day) shorting ETF for those looking to short oil. Note that this is
leveraged two times, so prices swings will be far more violent (in both
directions) than the price of oil.
6