A Return To Higher Oil Prices: It’s
Complicated
Art Berman
Labyrinth Consulting Services, Inc.
Ray Leonard
Hyperdynamics
CFA Society Buffalo
Buffalo, New York
April 26, 2016
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1
AReturnToHigherOilPrices:It’sComplicated
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OilpricescollapsedbeginninginJune2014becauseofmarketover-supply.
Thiswasaclassicbubble:easycredit+highoilpricesafterthe2008FinancialCollapseleadto
over-investmentandover-production.
Weareinthethirdoil-pricerallysincepricescollapsed—pricesare63%higherthaninJanuary:
$44vs.$27perbarrel.
Thisrallyissimilartotheprevioustwobutmayenddifferentlybecauseofgrowingconcern
aboutsupplyfromunder-investment(thereversesideofabubble).
ThefailureofanOPECproduction-freezemaysignalSaudiArabia’sexpectationforhigheroil
pricesinthenear-tomediumterm.
Theweakglobaleconomymaynotbeabletosustainmuchhigheroilprices.
Everyone’sbreak-evenpriceincludingOPEC’sishigherthancurrentprices.
Becauseofaprofoundlychangedeconomyandassociatedmonetarypolicies,wehavecrossed
aboundaryandareturntohigheroilpricesiscomplicated.
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2
EnergyIsTheEconomy:TheContextforTheOil-PriceCollapse
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Peoplethinkthattheeconomyrunsonmoneybutitrunson
energy–NateHagens.
Today,oilandgasprices&theeconomymustbeviewed
throughthedebtlens.
Theendofcheapoilandnaturalgasintheearly2000sledto
financialdislocationsandultimately,theFinancialCollapseof
2008.
Becauseofresourcescarcity,oilpricesincreasedfroma
baselineof$33/barrelinthe1990stoanaveragepriceof
$99/barrelfromlate2010untilSeptember2014.
BeforetheFinancialCollapse,E&Pcompanieshadalmost
unlimitedaccesstojoint-venturecapitalandbankcredit.
Post-collapsemonetarypolicyfocusedonforcing
consumptionandinvestment:zerointerest&further
expansionofcredit.
Thisresultedinmorecapitaltooilcompaniesintheformof
bondsandshareofferingsasinvestorsreachedforyieldina
low-interestrateworld.
Itisimpossibletounderstandandcriticallyevaluatetheshale
gasortightoilwithoutthiscontext.
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3
GlobalOilOutputandOver-Production:HowWeGotHere
World CrudeOil&CondensateProduction
IncrementalCrude OilProductionSinceJanaury2014
82,000
U.S.+ Canada
Iraq
Brazil
Russia
SaudiArabia
Iran
4
80,000
2010-2015~7.1
mmbpdincrease
78,000
74,000
72,000
Millions ofBarrelsofCrudeOilPerDay
ThousandsofBarrelsPerDay
76,000
2003-2009Production
Plateau~72.5mmbpd
70,000
68,000
66,000
3.5
Productionfromthesecountries was2.8mmbpd
moreinFeb2016thaninJan2014.
3
1.2mmbpdwasfromtheU.S. &1.1mmbpdfrom
Iraq.Russiaadded0.33mmbpd.
Saudi Arabia
Russia Iran
Brazil
Iranproductionincreased0.15mmbpd
fromDecember2015.
2.5
Iraq
2
1.5
1
U.S.+Canada
64,000
0.5
62,000
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•
•
•
•
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•
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
2015
May-15
2014
Mar-15
2013
Jan-15
2012
Feb-15
2011
Dec-14
2010
Oct-14
2009
Nov-14
2008
Sep-14
2007
Jul-14
2006
Aug-14
2005
Jun-14
2004
Apr-14
2003
May-14
2002
Feb-14
2001
Mar-14
2000
Source: EIAandLabyrinthConsulting Services,Inc.
0
Source:EIA&Labyrinth Consulting Services,Inc.
Jan-14
60,000
Globalcrudeoilproductionreachedaplateauof~72.5mmbpdfrom2003-2009.
Depletionofoldfieldsasnewdiscoveriestooklongertobringonproductionmeantnoproduction
growth.
Higheroilpricesprovidedincentivetoproducemoreexpensive,unconventionaloil:tightoil
(shale),oilsandsanddeep-wateroil.
7.1mmbpdincreasefrom2009-2015leadtoproductionsurplusbyFebruary2014thatpeakedin
May2015.
Theover-supplycausedoilpricestocollapsebeginninginmid-2014.
Low-interestratesandcurrencydevaluationaftertheFinancialCollapseof2008-2008enabled
over-investmentandover-production:cheapmoneyandhighoilprices.
Maincontributorstoover-production:U.S.+Canada,Iraq,BrazilandRussia.
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4
GlobalMarketBalanceandTightOilOver-Production
Currentglobaloilmarketisover-suppliedby~1.45millionbarrelsofliquidsperday.
Themarketismovingslowlytowardbalance.
Productionsurplusincreasedto>3mmbpdbyMay2015&hasdeclinedsincethen.
Supplyhasflattenedbutconsumptionhasfallen.
Theoriginsofover-supplyofoilandlowoilpricesarefound,ironically,inincreasedscarcity
ofpetroleumresources.
• Scarcerresourcesledtohigherpricesthatpermittedproductionofunconventionaloil.
• Over-investmentbecauseofhighpricesandeasycreditledtoover-production,over-supply
andloweroilprices.
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5
TheEndofCheapOil
• Oilpriceshaveonlybeenmorethan$90/barrel(March2016dollars)3times:aftertheoil
shocksofthe1970sandearly1980s,beforethe2008FinancialCollapse,and2010-2014.
• Forthelast15yearsofthe20thcentury,oilpricesaveraged$33/barrelandwerepartly
responsibleforeconomicprosperityintheUnitedStates(Reagan-Bush-Clintonera).
• LowpercentofGDPspentonenergy.
• DuringtheAsianFinancialcrisisin1998,oilpricesreachedlowestlevelsince1950($16.49/
barrel).
• Cheapoilendedintheearly21stcentury—flatproduction&increaseddemandfrom
developingworldespeciallyChina.
• Longestperiod(44months)ofhighoilpricesaftertheFinancialCollapse.
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6
TheCollapseofWorldOilPrices
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Marketbalanceexpressedbyrelativesupplysurplusordeficit(supplyminusdemand).
PeriodofsupplydeficitbeforetheFinancialCollapsecontributedtohighoilprices.
AsupplysurplusbecauseoflowdemandaftertheFinancialCollapse(2008-2009).
Periodofsupplydeficitmostof2011-2014becauseofsupplyinterruptionsintheMiddleEast.
Growingsupplysurplusbeginningin1stquarterof2014causedcollapseofoilprices.
Thesurplusreachedamaximuminthe2ndquarterof2015(2.2mmbpd)andhasgenerally
improvedsincethenwithfallingproductionbutremainsmorethan1.5mmbpd.
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TheCollapseofWorldOilPrices
• Theoilindustryexperienceddownturnsduringpreviousperiodsoflowoilprices.
• Capexgenerallyfollowsoilprice(butnotin1998-99).
• Significantlylowerlevelsofinvestmentinoilexplorationandproductionascompaniescut
budgetsandstaff.
• Themagnitudeofcutsanddecreasedinvestmentaremuchgreaterinthisdownturn:debt
makesadifference.
• Threephasestothisdownturnmarkedbychangesinrigcountrespondingtopricecycles.
• Reduceddrillingandcompletion,anddevelopmentprojectshavehurttheoil-fieldservices
industryinadditiontooilcompanies.
• Over-shootwillinevitablyleadtohigheroilprices.
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8
TheBigPictureOnOilPrices:Under-Investment
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LargereductioninE&Pinvestmentin2015andprobablyevengreaterin2016.
Deferredinvestmentsin2015equivalentto20billionbarrelsofreserves.
GlobalE&Pestimatedcapexfor2016is44%(-$412billion)of2014.
Asubstantialsupplydeficitwillresultinthenot-too-distantfuture.
Apricespikeseemsunavoidable.
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9
TheBigPictureOnOilPrices:E&PDebt
• Oilcompanieshavereliedondebtduringgood
andbadtimessincetheFinancialCollapse.
• SecondaryshareofferingsinU.S.E&P
companiesarealreadyhigherYTD2016thanin
2015.
• Pioneer$1.4billion,Devon$1.3billion.
• Investorsarelookingforthebottom.
• ~$140billioninjunkbonddebtcomingdueover
next7years.
• Hugebankexposuretoenergydebt.
• Butcompaniesarespendingmorethanthey
earnfromoperations.
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10
TheBigPictureOnOilPrices:MonetaryPolicy
• Interestrateshavebeenalmostzerosincethe2008FinancialCollapse.
• 8yearsofzero-interestratepolicyhavedistortedinvestmentsandthe
economy.
• Investorsseekyieldbecausetraditionalinvestmentshavealmostnone.
• U.S.E&Pcompaniesbecameanattractiveinvestmentbecauseofhighyieldand
relativelylowrisk.
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11
TheBigPictureOnOilPrices:MonetaryPolicy
NYMEXWTIPrice&WSJ DollarIndex
WTI NYMEXPrice
WSJDollarIndex
$50
93
Dollar Index!(RHS)
$45
$40
92
WTI!(LHS)
Long dollar!futures!
bets!sold!on!doubts!
about!Fed!rate!hikes
91
NYMEXWTIPrice($/Barrel)
89
$36!Price!Double
Bottom
$30
88
$25
87
$26!Price!Double
Bottom
$20
86
Declining!dollar!
value
$15
85
$10
84
$5
83
18-Apr-16
11-Apr-16
4-Apr-16
28-Mar-16
21-Mar-16
14-Mar-16
7-Mar-16
29-Feb-16
22-Feb-16
15-Feb-16
8-Feb-16
1-Feb-16
25-Jan-16
18-Jan-16
11-Jan-16
Source: EIA,WallStreetJournal&Labyrinth ConsultingServices,Inc.
4-Jan-16
$0
WallStreetJournalDollar Index
90
$35
82
• AnegativecorrelationbetweenthevalueoftheU.S.dollarandworldoilprices:a
globallyconnectedeconomyinwhichcountriescompeteforinvestmentbasedon
interestratesandcurrencyvaluation.
• OiltransactionsaredenominatedinU.S.dollarsastheworldreservecurrency.
• HigherU.S.interestratesfavorinvestmentsintheU.S.economyovercommoditieslike
oil.Whenthedollarisstrong,oilpricesaregenerallylowerandviceversa.
• Thecorrelationbetweenoilpriceandthedollarisespeciallystrongsince2015and
partlyexplainspricecycles.
• ThelatestpricerallybeganaftertheFederalReserveBankindicatedthatfurther
interestrateincreasesin2016wereunlikely.
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12
PriceCycleTrendsandPriceVolatility
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Oilpriceshaveincreasedfrom$26to$44perbarrelduringthecurrentJanuary–Aprilpricerally.
ThisisbasedpartlyonhopeforanOPEC-plus-Russiaproductionfreeze.
Thereweretwomajorpricecyclesin2015:March-August($44-$60-$38perbarrel)andAugust-January($38$49-$27perbarrel).
ThefirstwasbasedonplungingU.S.rigcountsandwithdrawalsfromstorage.
ThesecondwasbasedongoodeconomicnewsaboutChinaandU.S.storagewithdrawals.
Bothofthesecycleslastedapproximately150days(5months).
Oil-pricevolatilitywasgenerallyhighatthebeginningsandendsofthecyclesandgenerallylowduringtheir
peaks.
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13
ThePresentPriceCycle
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Pricesincreasedfrom$26.55to$33.62inlateJanuaryandthendroppedto$26.21onFebruary11.
This“double-bottom”patternprobablytestedthelow-pricethresholdforthegreateroil-pricecollapsethatbeganin
June2014.
Pricesincreasedto$41.45onMarch22overaperiodof40days,thenfellto$35.70overthenext12daysbefore
peakingat$41.97onApril13.
The$35.70lowprobablytestedathreshold.
Pricesarenowfluctuatingbetween$42and$44/barrel.
Volatilitypatternsgenerallyareconsistentwithearliercyclesbutitistooearlytosayhowthesearedeveloping.
Thetotaldurationofthiscycleis96dayssofar.
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14
U.S.ProductionDecline
U.S.Crude OilProduction
$120
9.69
660!kbpd!decline!since!April!2015
(90 kbpd!since!February)
$100
9.12
9.04
9.00
8.00
$80
8.11
MillionsofBarrelsofCrude OilPerDay
WTI Price
7.00
$60
WTI!Price!(RHS)
6.00
$40
Oil!Production
(LHS)
5.00
•
$20
Nov-17
Jul-17
Sep-17
Mar-17
May-17
Jan-17
Nov-16
Jul-16
Sep-16
May-16
Mar-16
Jan-16
Nov-15
Jul-15
Sep-15
Mar-15
May-15
Jan-15
Nov-14
Jul-14
Sep-14
Mar-14
May-14
Source:EIAApril 2016STEO&Labyrinth ConsultingServices,Inc.
Jan-14
4.00
•
•
•
WTIPrice($/Barrel)
CrudeOilProduction
10.00
$0
Marchproductionfellto9.04millionbarrelsperday,90,000barrelsperdaylessthaninFebruary.
660,000barrelsperdaylessthanpeakproductioninApril2015.
EIAforecaststhatproductionwilldropanother920,000barrelsperdaybySeptember2016fora
totaldeclineof1.58millionbarrelsperdaycomparedtoApril2015.
Therateofdeclinehasincreasedfrom~60,000bpd/monthto~80-90,0000bpd/month.
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15
InventoriesRemainAnObstacleToPriceRecovery
OECDLiquids Inventories
2015
2014
2013
2012
2011
2016
3.2
2016!Inventory
3.1
Billions ofBarrels ofLiquids
3
359!mmb!above the!5-year!average
192!mmb!(54%)!is!USA
2015
2.9
2.8
2.7
2014
2.6
2012
2011
2013
2.5
2.4 Source:EIA&LabyrinthConsultingServices,Inc.
January
February
March
April
May
June
July
August
September
October
November
December
• U.S.stocksarenearrecordhighlevelsof539millionbarrels:78millionbarrelsmore
thanatthistimein2015and138millionbarrelsmorethanthe5-yearaverage.
• OECDstocksarealsoatrecordlevelsof3.13billionbarrelsofliquids.
• Thatis359millionbarrelsmorethanthe5-yearaveragebut54%ofthosevolumesare
U.S.stocks.
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16
ComparativeInventoriesAtCushingAreFalling
Cushing ComparativeInvntory&Futures-SpotPrice Spread
FuturesSpread
Comparative Inventory
WTI
30
$70
Comparative!Inventory!(LHS)
$60
25
$50
20
$40
15
$30
10
$20
5
WTIPRrice&Futures-Spot Price Spreadx4(Dollars PerBarrel)
CushingComparative Inventory(MillionsofBarrels ofCrude Oil)
WTI!(RHS)
$10
1-Apr-16
15-Apr-16
18-Mar-16
5-Feb-16
4-Mar-16
19-Feb-16
8-Jan-16
22-Jan-16
25-Dec-15
11-Dec-15
27-Nov-15
13-Nov-15
2-Oct-15
30-Oct-15
16-Oct-15
4-Sep-15
18-Sep-15
7-Aug-15
24-Jul-15
21-Aug-15
10-Jul-15
26-Jun-15
12-Jun-15
29-May-15
1-May-15
15-May-15
3-Apr-15
17-Apr-15
6-Mar-15
20-Mar-15
20-Feb-15
9-Jan-15
6-Feb-15
23-Jan-15
26-Dec-14
Dec-June!2016!Futures!Price!Spread!(RHS)
0
$0
• Comparativeinventoryisdeterminedbycomparingcurrentstockswithamoving
averageofstocksoverthepast5years.
• Thetwopreviouspricecyclesin2015werebothcharacterizedbyfallingcomparative
inventories.WhenC.I.patternsreversed,pricesfell.
• ThecurrentpricecycleshowsstrongC.I.decreaseatCushing.
• Front-to-backfuturesspreadstypicallyfallwithdecreasinginventoriesbecauseshortdatedcontractsgainvaluecomparedtolonger-datedcontracts.
• Thepasttwocyclesendedbecauseproducersincreaseddrillingandproductionat
higherprices.
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17
TheCurrentPriceRallyandMovementofStocksOutofCushing
GulfCoast(PADD3)Minus Cushing InventoriesandWTIPrice
NYMEXWTIPrice&WSJ DollarIndex
230
$5
18-Apr-16
11-Apr-16
4-Apr-16
28-Mar-16
21-Mar-16
14-Mar-16
150
83
Source: EIA,WallStreetJournal&Labyrinth ConsultingServices,Inc.
7-Mar-16
Apr-16
Mar-16
Feb-16
Mar-16
Jan-16
Feb-16
Jan-16
Jan-16
Dec-15
Dec-15
Nov-15
Oct-15
Nov-15
Oct-15
Sep-15
Sep-15
Aug-15
Jul-15
Aug-15
$0
Jul-15
Jul-15
Jun-15
Jun-15
May-15
Apr-15
May-15
Apr-15
Mar-15
Feb-15
Mar-15
Jan-15
Feb-15
Jan-15
Jan-15
Source: EIA&Labyrinth ConsultingServices,Inc.
84
29-Feb-16
160
85
$10
22-Feb-16
$10
86
Declining!dollar!
value
$15
15-Feb-16
170
87
$26!Price!Double
Bottom
$20
8-Feb-16
$20
88
$25
1-Feb-16
180
89
$36!Price!Double
Bottom
$30
25-Jan-16
190
90
18-Jan-16
Gulf Coast!Minus!Cushing!
Stocks!(RHS)
91
$35
4-Jan-16
$40
92
WTI!(LHS)
Long dollar!futures!
bets!sold!on!doubts!
about!Fed!rate!hikes
$40
NYMEXWTIPrice($/Barrel)
200
GulfCoastMinusCushingStocks(Millions ofBarrels ofCrude Oil)
210
$50
WTIPrice($/Barrel)
Dollar Index!(RHS)
$45
Oil!moving!out!of!Cushing!and!into!
Gulf!Coast storage
$0
WSJDollarIndex
93
220
11-Jan-16
WTI!Price!(LHS)
$60
$30
WTI NYMEXPrice
$50
WallStreetJournalDollar Index
$70
82
• OverallU.S.crudeoilstocksareincreasingbutinventoriesarefallingatCushing.
• GulfCoastinventoriesincreaseasCushingstocksaretransferred.Thisalsocorrelates
withpricecyclesin2015and2016.
• Cushingrepresentsonly12%oftotalstocksbutisthepricingpointforWTIpricesandis
thebottleneckforallCanadianimportsandBakkenproduction.
• Itisalsothelargestcasinointheworld:3billionsbarrelsofoilfuturescontractsare
tradedeveryweekonWTI—3timesBrent,theinternationalbenchmarkcrudeoil.
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18
WhyImportsFromCanadaMatter
U.S.ImportsofCrudeOil
3.5
3.03
3
U.S.imports 7.3mmbpd
6.94mmbpd (95%)from9countries
MillionsofBarrels ofCrude OilPerDay
2.5
Canada(44%),SaudiArabia(17%),Venezuela(13%),Mexico
(8%),Columbia(7%),Iraq(5%),Nigeria(3%),Kuwait(2%)
andAngola(1%)
2
80%ofCanadianproduction goestotheU.S.
1.5
1.20
1
0.89
0.53
0.51
0.5
0.34
0.11
0.10
Kuwait
Angola
Nigeria
Iraq
Colombia
Mexico
Venezuela
SaudiArabia
0
Canada
0.24
Source:EIA&LabyrinthConsulting Services, Inc.
• 44%ofU.S.importedcrudeoilisfromCanada:3millionbarrelsperday.
• TherestcomesfromSaudiArabia(17%--1.2mmbpd),Venezuela(13%--0.9mmbpd),
Mexico(8%--0.5mmbpd),Colombia(7%--0.5mmbpd),Iraq(5%--0.3mmbpd),Nigeria
(3%--0.25mmbpd),Kuwait(2%0.1mmbpd)andAngola(1%--0.1mmbpd).
• U.S.importsfromCanadahaveincreased1.25mmbpdsince2011.
• 80%ofallCanadianoilproductionisexportedtotheU.S.
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19
InventoryGrowthIncludesImportedOil
• U.S.inventoryincludesimportedoilboughtonarbitrage.
• AsU.S.productiondeclinedafterpeakinginApril2015,netcrudeoilimports
increased.U.S.inventoriesincreasedatthesametime.
• ThereisareasonablecorrelationbetweendecreasedBrent-WTIspreadsandincreased
imports.
• Today’sworldeconomyisacasino.
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20
CrudeOilInventories,OilConsumptionandWTIPrices:2016PriceRally
U.S.Crude OilProduction
WTI Price
WTI!Price (LHS)
Mar-16
6
Feb-16
Jan-16
Nov-15
Oct-15
Sep-15
Aug-15
Source:!EIA&!Labyrinth!Consulting! Services,!Inc.
Jul-15
$0
7
6.5
Mar-15
$0
Jan-Apr!Price!
Cycle
$10
Feb-15
Nov-17
Jul-17
Sep-17
May-17
Jan-17
Mar-17
Nov-16
Jul-16
Sep-16
May-16
Jan-16
Mar-16
Nov-15
Jul-15
Sep-15
May-15
Jan-15
Mar-15
Nov-14
Jul-14
Sep-14
May-14
Source:EIAApril 2016STEO&Labyrinth ConsultingServices,Inc.
Aug-Jan!Price!
Cycle
Mar-Aug!2015!
Price!Cycle
Jan-15
$20
Jan-14
$30
$20
5.00
Mar-14
7.5
$40
Oil!Production
(LHS)
8
$40
Jun-15
WTI!Price!(RHS)
Consumption!(RHS)
WTIPrice($/Barrel)
$60
WTIPrice($/Barrel)
8.11
7.00
4.00
Stocks!(RHS)
$80
Dec-15
9.12
9.04
8.5
May-15
9.69
9
$50
6.00
Inventory
$60
$100
8.00
Consumption
$70
Consumption (mmbpd/2.5)&Crude OilStocks(mmbo/60)
$120
660!kbpd!decline!since!April!2015
(90 kbpd!since!February)
9.00
MillionsofBarrelsofCrude OilPerDay
WTI Price
Apr-15
CrudeOilProduction
10.00
U.S.Liquids Consumption, CrudeOilStocks&WTIPrice
• Inthecurrentpricerally,consumptionhasincreasedfollowingrecordlowpricesfromDecember
2015throughFebruary2016.
• Veryhighstocklevelsmayberollingover.
• Consistentproductiondeclineof~70,000barrelspermonthsinceSeptember2015.
• 90,000barrelperdaydeclineinMarchislargestmonthlydropsofar.
• During2015pricerally,$15perbarrel(41%)priceincreasekilledconsumption.
• Incurrentrally,peakpricewasalmost$17abovebaselinewithgreaterpercentincrease(63%)
than2015.
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TheLong-TermPerspectiveOnOilPrices
•
•
•
•
•
Averageoilprice1950-Present:$45perbarrel.
Modaloilprice:$25perbarrel.
Presentprice:$44perbarrel.
1986-1999:$33perbarrel.
Theendofcheapoilinthe21stcenturyledtofinancialdislocationsand
ultimately,theFinancialCollapseof2008.
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IncreasedDrivingWillNotGreatlyIncreaseU.S.OilConsumption
GasolineProductSupplied, TotalSale&Exports
12per.Mov.Avg.(GasolineSales)
3,200,000
LabyrinthConsultingServices,Inc.
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Jan-15
Jun-15
Nov-15
Oct-13
Aug-14
Mar-14
Jul-12
Dec-12
May-13
Apr-11
Feb-12
Sep-11
Jan-10
Jun-10
Nov-10
Oct-08
Aug-09
Mar-09
Jul-07
Dec-07
May-08
Apr-06
Feb-07
Sep-06
Jan-05
Jun-05
Nov-05
Oct-03
Aug-04
Mar-04
Jul-02
50000
0
GasolineStocks
GasolineStocks
24per.Mov.Avg.(GasolineStocks)
250,000
GasolineStockshaveincreased13%
(27mmb)since2009
240,000
230,000
Stocks
220,000
24-monthaverage
210,000
200,000
Jan-15
Jun-15
Nov-15
Aug-14
Oct-13
Mar-14
Jul-12
Dec-12
May-13
Apr-11
Feb-12
Sep-11
Jun-10
Nov-10
Jan-10
Oct-08
Aug-09
Mar-09
Dec-07
May-08
Jul-07
Feb-07
Sep-06
Jun-05
Apr-06
Nov-05
Jan-05
Oct-03
May-03
Jul-02
180,000
Feb-02
190,000
Dec-02
• Loweroilpriceshaveleadtogreatergasoline
consumption.
• Productsuppliedhasincreased9%(745mbpd)
sinceJan2009.
• Vehiclemilestraveledhaveincreased6%(0.16
trillionmilespermonth).
• Gasolinesaleshavedeclined8%(-640mbpd).
• Gasolineexportshaveincreased264%(+419
mbpd)andstoragehasincreased(+27mmb).
• Greatergasolineconsumptionwillnotgreatly
increaseU.S.oilconsumption.
Dec-02
6000
May-03
2,400,000
100000
Gasoline exportshaveincreased
264%(419mbd)since2009
Apr-01
Jan-2015
Jun-2015
Nov-2015
Oct-2013
Aug-2014
Mar-2014
Jul-2012
Dec-2012
May-2013
Apr-2011
Feb-2012
Sep-2011
Jan-2010
Jun-2010
Oct-2008
Aug-2009
Mar-2009
Jul-2007
Dec-2007
May-2008
Apr-2006
Feb-2007
Sep-2006
Jan-2005
Jun-2005
Nov-2005
Oct-2003
Aug-2004
Mar-2004
Jul-2002
Dec-2002
May-2003
Apr-2001
Feb-2002
Sep-2001
Jan-2000
Jun-2000
Nov-2000
Source:EIA,U.S. FederalReserveBank&LabyrinthConsulting Services,Inc.
6500
Feb-02
2,500,000
Exports(RHS)
GasolineStocks (RHS)
7000
Sep-01
Product Supplieddata;noVMTdataforthosemonths.
150000
7500
Apr-01
2,600,000
VehicleMilesTraveled
(RHS)
6,500 *March&April2016Gasoline Salesestimatedfromweekly
6,000
2,700,000
200000
Saleshavedecreased8%(623mbd)
since2009
8000
Sep-01
Americansaredriving6%more(0.16trillion
miles/month)thanin2009butusing8%less
gasoline(-0.64mmbpd)
250000
TotalSales(LHS)
Nov-00
2,800,000
300000
8500
Jan-00
8,000
350000
9000
Jun-00
2,900,000
9500
Jan-00
8,500
VehicleMilesTraveled(MillonsofMiles)
3,000,000
Jun-00
12-month average
9,000
7,000
12per.Mov.Avg.(Exports)
Productsuppliedhasincreased9%
(745mbd)since 2009
ProductSupplied(LHS)
Nov-00
GasolineProduct Supplied&TotalSales(ThousandsofBarrels PerDay12MMA)
3,100,000
GasolineStocks(ThousandsofBarrels)
9,500
7,500
Exports
12per.Mov.Avg.(Total GasolineSales)
10000
Nov-2010
TotalWholesale&RetailGasoline Sales(ThousandsofBarrels PerDay)
TotalGasolineSales(LHS)
Total GasolineSales
12per.Mov.Avg.(GasolineProductSupplied)
Aug-04
10,000
GasolineProductSupplied
Mar-04
GasolineSales
GasolineExports (ThousandsofBarrels12MMA)
TotalU.S.GasolineSales&VehicleMilesTraveled
Vehicle MilesTraveled
23
APerspectiveOnBreak-EvenPrices
IMFProjected2016FiscalBreak-Even&U.S.TightOilPrices
$160
FiscalBreak-EvenPrice(DollarsPerBarrel)
$140
$137
$119
$120
$115
$110
$97
$100
$95
$89
$89
$86
$80
$71
$70
$69
$67
$65
$60
$49
$40
$20
Kuwait
BakkenCore
Iraq
UAE
PermianCore
SaudiArabia
Average
Qatar
EagleFordCore
Source: IMF!&!Labyrinth! Consulting! Services,!Inc.
Oman
Libya
Bahrain
Algeria
Iran
Yemen
$0
• Therehasbeenalottalkaboutlow-andhigh-costproducerssincetheoil-pricecollapseof
2014.
• IMFpublishedfiscalbreak-evenpricesforOPECin2015.
• Wehavedeterminedbreak-evenpricesforthecoretightoilplaysintheU.S.
• Everyoneneedspriceshigherthantoday’stobreakeven.
• Realistically,$70perbarrelistheminimumforthemostlower-costproducers.
• MostOPECmembersneedmorethan$80tobreakeven.
• U.S.tightoilplayslookprettygoodinthiscompany!
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AReturntoHigherOilPricesIsComplicated
•
•
•
•
•
•
•
•
•
•
•
Thecurrentpricecyclemayrepresentthebeginningofanoil-pricerecovery.
ComparativeinventoriesarefallingatCushingandstocksnowincludeimportedoil.
Chartpatternssuggestthatabottommayhavebeenestablishedat$26-$27perbarrel.
Amorerecentthresholdmayhavebeentestedat$36perbarrel.ThefactthattheDohafailuredidnotaffect
pricesmuchisnotable.
Earlierpricecyclesin2015endedbadly.Higherpricesresultedinincreaseddrillingandcompletion.
Also,demandmayhavebeenrange-boundbecauseofaweakglobaleconomy.
Whatmaybedifferentisconcernaboutmedium-termsupplybecauseofunder-investment.
Therehasbeenmoreprogresstowardmarketbalancenowbuttheglobalsurplusisstill1.5mmbpd.
Thelikelypathforwardwillbemorepricecyclesbutthistime,withhigherratherthanlowerendingprices.
Whatisareasonablepricerecoverylevel?Historysuggests$45perbarrelbuteveryoneneedsmorenowto
breakeven.
Aweakglobaleconomyandweakoildemandarethebiggestrisks.
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25