Oil: Cash Crop of the Middle East
Jason Schenker Energy Economist 704.383.3695 jason.schenker@wachovia.com
The Global Economy and Oil
The Global Economy and Oil Growth
•All Ships Are Rising (The World is Growing) •World GDP Distribution •World Oil Demand Allocation •High Prices Hurt U.S. Trade Balance
World GDP Based on U.S. Dollar Purchasing-Power-Parity
U.S. 21%
Non-G8 54%
World GDP
Japan 7% Germ any 4% France 3% U.K. Italy 3% Russia 3% Canada 3% 2%
Global Oil Usage in 2004 (IEA)
Africa & M.E. 10% FSU 5%
L.A. 6%
Global Demand for Crude in 2004
North America 30%
Other Asia 10%
China 8%
Europe 20% OECD Pacific 11%
"REAL" GDP GROWTH
Bar - Seasonally Adusted Annual Rate, Line - Yr/Yr % Change
8%
8%
3rd Quarter 2004 @ 3.7% Yr/Yr % Change @ 3.9%
6%
6%
4%
4% Real GDP
2%
2%
0%
0%
-2%
2000
2001
2002
2003
2004
-2%
G8 Real GDP Growth Rates Year-on-Year %Change
8%
8% 2Q 2004
7% 6%
7% 6%
5%
G8 Growth in 2Q 2004
5%
4%
4%
3%
3%
2%
2%
1%
U.S.
Japan Eurozone U.K. Russia Canada 1%
Chinese Real GDP Growth (Year-on-Year Rate)
12%
12%
10%
10%
8%
8% Chinese Growth
6%
6%
4%
4%
2%
2%
0%
97
98
99
00
01
02
03
04
0%
IMPORT PRICES FOR ENERGY PRODUCTS 160
Year to Year Percent Change
160
Petroleum & Petroleum Products, Up 48.7%
140
140
120
120
Import Prices
100
100 September
80 60 40
80 60
01
02
03
04
40
TRADE BALANCE IN GOODS & SERVICES $0
3 Month Moving Average - In Billions
$0
August @ -$53.2 B $-10
$-10 $-20
$-20 Negative Trade Balance
$-30
$-30
$-40
$-40
$-50
$-50
$-60 92 93 94 95 96 97 98 99 00 01 02 03 04 $-60
Oil Markets: Supply and Demand
Price of Crude Oil
Price per Barrel since January 2000 $60
$60
$50
$50
$40
$40
First Look: Crude Prices Since 2000
$30
$30
$20
$10
November 4, 2004 2000
2001
2002
2003
2004
$20
$10
Oil Markets Oil PriceisDriven By
•Production of Crude (Supply) •Crude Inventories (Reserve Supply) •Refinery Capacity (Supply of Products) •Product Inventories (Reserve Supply) •Product Prices (Demand for Products) •Crack Spreads (Profitability of Products)
Global Oil Supply in millions of barrels per day 84
84
82
82
September @ 84.0
80
80 Global IEA Supply
78
78
76
76
74
74
72
2000
2001
2002
2003
2004
72
Global Demand in millions of barrels per day 86
86
84
84
82
82 Global IEA Demand Forecast
80
80
78
78
76
76
74
2003
2004 Source: International Energy Agency
2005
74
U.S. Crude Oil Inventories Reported Weekly by the EIA and API
360
360
October 29, 2004
340 320
320 Crude Inventories Since 1999
300
300
280
280 American Petroleum Institute Department of Energy
260 240
340
1999
2000
2001
2002
260 2003
2004
240
U.S. Crude Inventories in millions of barrels
310 300
310 EIA Inventories API Inventories
290
300 290
Crude Inventories Since 2003
280
280
270
270 October 29, 2004
260
2003
2004
260
U.S. Crude Oil Inventories Reported Weekly by the EIA and API
310
310 October 29, 2004
300 290
300
Crude Inventories Since 2004
280 270 260
290 280
American Petroleum Institute Department of Energy
2004
270 260
Gasoline
U.S. Gasoline Inventories in millions of barrels
220
220 October 29, 2004
215 210
215 210
205
205
Gasoline Inventories
200
200
195
195 EIA Inventories API Inventories
190 185
2003
2004
190 185
Price of Gasoline Contract Price per 100 Gallons since January 2000
$160
$160
$140
$140
$120
$120 Gasoline Prices Since 2000
$100
$100
$80
$80
$60 $40
November 4, 2004 2000
2001
2002
2003
2004
$60 $40
Gasoline - Oil Crack Spread Prices since 2000
$20
$20 Crack Spread 100-day Moving Avg 30-day Moving Avg
$15
$15
GasolineCrude Crack Spread
$10
$10
$5
$5
November 4, 2004 $0
2000
2001
2002
2003
2004
$0
Gasoline-Oil Crack Spread Price per Barrel since January 2004
$20
$20
Crack Spread 100-day Moving Avg 30-day Moving Avg $15
$15 GasolineCrude Crack Spread since January 2004
$10
$10
$5
$5
November 4, 2004 $0
Jan
Feb
Mar
Apr
May
Jun
2004
Jul
Aug
Sept
Oct
Nov
$0
Gasoline Prices
U.S. Dept of Energy Automotive Gasoline Total Regular Unleaded Avg. Price
$2.10
$2.10
$2.00
$2.00
November 1 @ $2.03
$1.90
$1.90
$1.80
$1.80
Retail Gasoline Prices
$1.70
$1.70
$1.60
$1.60
$1.50
$1.50
$1.40
2003
2004
$1.40
Heating Oil
U.S. Heating Oil Inventories in millions of barrels
150 140
150 EIA Inventories API Inventories
October 29, 2004 140
130
130 Heating Oil Inventories
120
120
110
110
100
100
90
2000
2001
2002
2003
2004
90
Price of Heating Oil
Price per Contract since January 2000 $160
$160
$140
$140
$120
$120 Heating Oil Prices Since 2000
$100
$100
$80
$80
$60 $40
November 4, 2004 2000
2001
2002
2003
2004
$60 $40
Heating Oil - Crude Crack Spread Price per Barrel since January 2002
$12
$12
Crack Spread 100-day Moving Avg 30-day Moving Avg
$10 $8
$10 $8
Heating OilCrude Oil Crack Spread
$6
$6
$4
$4
$2
$2
$0
$0
November 4, 2004 $-2
2002
2003 Shaded Boxes Include Nov.- Feb.
2004
$-2
Gasoline and Heating Oil Crack Spreads Dollars Per Barrel Since 2003
$20 Gasoline Crack Spread Heating Oil Crack Spread
$15
November 4, 2004 Heating Oil and Gasoline Crack Spreads
$10
$5
$0
2003
2004
Jet Fuel
U.S. Jet Fuel Inventories in Millions of Barrels
50
50
45
45
40
35
Jet Fuel Inventory
40
Inventories 52-week moving average
35
30 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 30
U.S. Daily Jet Fuel Production in Millions of Barrels
1.8
1.8
1.6
1.6
1.4
1.2
Jet Fuel Production
1.4
Daily Production 52-week moving average
1.2
1.0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 1.0
U.S. Jet Fuel Price Dollars per 100 Gallon Contract (NY)
$180
$180
$160
$160
$140
$140
$120
$120
Jet Fuel Prices
$100
$100
$80
$80
November 4, 2004
$60 $40
00
01
02
03
04
$60 $40
Crude Oil
Price of Crude Oil
Price per Barrel since January 2004 $60
$60
$55
$55
$50
$50 Crude Prices Since January
WTI Crude Price 100-day Moving Avg 30-day Moving Avg
$45 $40
$45 $40
$35
$35
November 4, 2004
$30 $25
Jan
Feb
Mar
Apr
May
Jun
2004
Jul
Aug
Sep
Oct
$30
Nov
$25
Price of Crude Oil
Price per Barrel since January 2000 $60
$60
$50
$50
$40
$40
Last Look: Crude Prices Since 2000
$30
$30
$20
$20
$10
November 4, 2004 2000
2001
2002
2003
2004
$10
Future Energy Expectations? Risksof Higher Energy Prices
•Supply Disruption Premium (Iraq, Russia) •Inability to Build U.S. Gasoline Inventories This Winter •Increasing Global Demand (Especially non-OECD) •Price Increases are Long-Run Trends