Oil

• Oil is the largest and arguably most important commodity market in the world
  • Oil (energy) is what drives our modern world - every country uses and needs it
  • The oil market is larger than all other mined commodities (metals) combined
• Wars or other large military conflicts in the middle east tend to cause the price of oil to peak
• Oil and other commodity markets are hard to impact from the talk—they are physical supply and demand markets. They don't depend on mood and spirits.
  

• 20% cars & light trucks
• 24% trucks
• 12% other transport
• 28% industry
• 5% power
• 11% other

• Oil is a global commodity that trades on the global level
  • It is fairly easy to transport anywhere in the world
  • There are few differences in price across the globe
• The price thus depends on global supply and demand balances
• A growing global economy usually supports oil prices
• Global recessions or other crisis tend to reduce demand and similarly the price of oil
• OPEC meetings and production targets can also drive prices
• Embargos and Sanctions can impact supply
• Regional conflicts and wars can impact supply
• 1973 Oil Shock
• 1979 Iranian Hostage Crisis (sent oil to $40 creating a panic)
• Exploration and Development from the previous years can impact supply
• The Oil price depends on supply and demand cycles
• Global Growth = More Demand = Higher Price
• Supply Disruptions = High Price
• Inflation  = High Price
• Deflation = Lower Price
• Some Oil Exporting Countries require a certain Oil price to balance their budget:
• Saudi Arabia ($85/barrel estimate in 2018)
• Russia ($68/barrel estimate in 2018)
• Iran ($100/barrel estimate in 2018)
• Geopolitical Events can impact the price of oil
• Sanctions on oil producing countries = lower supply = higher prices

United States Crude Oil Demand

• Typically largest in summer (big driving season)
• Crude in storage drops
• Refineries go into maintenance mode in fall when demand goes down
• Crude in storage increases
• Over time US fuel economy has almost doubled (since 1970s)
• Oil exporting was illegal in the US from 1976 till 2016

Largest Oil Producers

• Worldwide 80 million barrels per day (2018)
• Top 3 produce ~37% of all world oil
• Saudi Arabia (~10 Million Barrels / Day)
• United States (~10 Million Barrels / Day)
• Russia  (~10 Million Barrels / Day)
• Are large enough to impact prices with production increases or cuts
• Russia & Saudi have typically been the largest - fracking pushed US to the top spot in late 2010s

Impact of Renewables (2018)

• Although renewables are growing, oil is is still the backbone of transpiration energy
• The world buys $6billion of oil every day