The Oil Market: From Boom to Gloom Mine Yücel Senior Vice President and Director of Research February 12, 216 The views expressed are those of the speaker and should not be attributed to the or the Federal Reserve System.
Nominal price, dollars per barrel, weekly 16 14 Oil prices plunge 12 1 West Texas Intermediate oil price 8 6 4 2 $31.28 2 24 28 212 216 NOTE: Final data point is the average of daily prices from Monday 2/1/16 to Friday 2/5/16. SOURCE: Energy Information Administration.
Dollars per barrel 16 14 12 1 Current oil prices not a record low Real prices of crude oil (December 215 dollars) 8 6 Refiners' acquisition cost of crude 4 2 1977 1984 1991 1998 25 212 SOURCES: Bureau of Labor Statistics; Energy Information Administration; FRB Dallas calculations.
Supply/demand mismatch Million barrels per day Million barrels per day 1 Implied change in inventories 4 Petroleum consumption 95 Petroleum production 3 9 Forecasts 2 85 1 8 75 212 213 214 215 216 217-1 SOURCE: Energy Information Administration.
U.S. and OPEC keep oil market oversupplied Growth in oil production, January 214-November 215 Million barrels per day 1.4 1.2 1..8.6 1.29 1.24.4.2..41.14 U.S. Iraq Saudi Arabia Other OPEC SOURCES: Energy Information Administration; Oil Market Report.
Why the recent slide in prices? Iran comes into the market U.S. output stronger than expected Concerns about Chinese demand The big picture from the oil data: healthy consumer, sick manufacturing December unusually warm Heating degree days (HDD) in the NE US were 33% below their 1-year average in December. Weather forecasts adding downside risk to prices High likelihood of warm weather in various parts of the OECD through 216Q1.
IMPACT ON U.S. ECONOMY
Million barrels per day 12 U.S. oil production 1 215 average 8 6 4 2 192 193 194 195 196 197 198 199 2 21 SOURCE: Energy Information Administration.
U.S. crude oil production from shale Thousand barrels per day 4, Texas 3,5 3,41 3, 2,5 2, 1,5 1, 5 786 Jan 21 1,652 Nov 215 Kansas Montana Utah Colorado Wyoming New Mexico Oklahoma North Dakota 236 Jan 21 1,169 Nov 215 1,98 Jan 21 Nov 215 SOURCE: Energy Information Administration.
Million barrels per day 9.9 Oil production levels off Rig count 1,95 9.4 1,75 8.9 Crude oil production U.S. rig count 1,55 8.4 1,35 1,15 7.9 95 7.4 75 6.9 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 55 SOURCES: Baker Hughes; Energy Information Administration.
Crude oil inventories at 8-year highs Million barrels 55 5 5-year range 215 214 5-year average 45 4 35 3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCE: Energy Information Administration.
Drilling investment falls with rig count Private fixed investment in mining/exploration Bln chained 29 $ Rig count 16 OPEC decision U.S. rig count 2,2 14 2, 12 1 8 6 4 2 Investment in mining/exploration 1,8 1,6 1,4 1,2 1, 8 6 25 26 27 28 29 21 211 212 213 214 215 216 SOURCES: Baker Hughes; Bureau of Economic Analysis.
Impact on U.S. economy The U.S. benefits from lower oil prices Boosts consumer disposable income PCE growth: 3.6% in 2Q, 3.2% in 3Q and 2.2% in 4Q 215 Auto sales up 9% in 215 Reduces the cost of energy to firms Reduces profitability of producing oil Layoffs, capex declines and bankruptcies in oil patch A 5% fall in oil prices may lead to a.3% to 1.% increase in GDP (depending on the model) Headline inflation falls
IMPACT ON STATE ECONOMIES
Low oil prices benefit most states (Effect of a 5% decline in oil prices on employment) -2. -4.3 -.7 -.7-2.3-1.7-1.2-1.6 SOURCE: The Shale Gas and Tight Oil Boom: U.S. States Economic Gains and Vulnerabilities, by Stephen P.A. Brown and Mine K. Yücel, Council on Foreign Relations, Energy Brief, Oct. 213.
Percent change (Dec/Dec) 5. 4.5 Energy states doing well in 214 4. 3.5 3. 2.5 2. 1.5 1..5. -.5 ND FL TX GA UT NV OR CO WA CA NC SC AR AZ TN U.S. DE ID KY MA LA WY MI WI OK NY AL NM MD CT IN IA KS OH NH MN RI PA IL MO NJ VT AK VA SD NE MS MT ME HI WV Texas U.S. SOURCE: Bureau of Labor Statistics.
ID SC UT FL CA WA OR HI AZ TN SD GA MA KY MD NC NV IN MI U.S. Energy states lose jobs in 215 Percent Change (year-to-date) 5 4 3 2 1-1 -2-3 -4-5 CO RI NM IL NY DE IA NJ AR VA OH MN NE ME TX CT AL MO MS WI VT PA MT NH KS AK OK LA WV WY ND U.S. Texas SOURCE: Bureau of Labor Statistics.
Rig count, weekly 24 2 Rig counts still falling Texas Rig count, weekly 1, 9 8 16 Louisiana Oklahoma 7 6 12 5 8 4 North Dakota 4 3 2 1 212 213 214 215 NOTE: Final data points are for the week of February 5. SOURCE: Baker Hughes.
Index, Jan. 5 '13 = 1, 4 WMA 18 16 Initial jobless claims still high 14 12 1 8 6 North Dakota Oklahoma Texas Louisiana U.S. 4 2 213 214 215 SOURCE: Bureau of Labor Statistics.
Rig count 1, 9 8 7 Texas rig count and oil production continue to decline Thousand barrels per day 4. 3.5 3. 6 5 4 Texas oil production 2.5 2. 3 2 Texas rig count 1.5 1 1. 213 214 215 SOURCES: Baker Hughes; Energy Information Administration.
Dollars per barrel 6 Regional breakeven prices varied 5 4 January 216 average WTI price: $32.65 3 2 1 Wolfbone Bone Spring Spraberry Eagle Ford Wolfcamp NOTE: Bars show average breakeven prices by play. Bands show county-level max and minimums. SOURCES: Bloomberg; Energy Information Administration.
Wells completed 3,5 Well completions dwindling Texas Wells completed 35 3, 2,5 2, 1,5 1, 5 North Dakota 3 25 2 15 1 5 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 SOURCES: Railroad Commission of Texas; North Dakota Oil and Gas Division.
Percent 8 7 Some states rely heavily on oil and gas severance taxes 72.4 (Share of 214 state tax revenues) 6 5 4 53.8 39. % Taxes Collected 3 2 1 18.5 1.9 8.9 7.5 2.1. AK ND WY NM TX LA OK CO CA SOURCE: U.S. Census Bureau, 214 Annual Survey of State Government Tax Collections.
WHERE DO WE GO FROM HERE?
Crude price forecast Dollars per barrel 12 Historical spot price STEO price forecast 1 NYMEX futures price 95% NYMEX futures confidence interval 8 6 4 2 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 SOURCE: Energy Information Administration.
Oil price outlook very uncertain Annualized percentage points 1 9 8 7 6 5 4 OVX (WTI volatility) 3 2 1 VIX (equity volatility) 27 28 29 21 211 212 213 214 215 216 217 SOURCES: Chicago Board Options Exchange; Wall Street Journal.
Outlook Lower for longer outlook for oil prices Global GDP growth is expected to rise over time Uncertainties abound Oil price risks more on the downside in the short run China, Iran, high inventories Energy importers such as the U.S. should continue to benefit from lower oil prices. Rough patch for energy-producing countries and states.
The Oil Market: From Boom to Gloom Mine Yücel Senior Vice President and Director of Research February 12, 216