mine yucel - monterrey 2016
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Federal Reserve Bank of Dallas
The Oil Market: From Boom to Gloom
Mine Yücel Senior Vice President and
Director of Research
Federal Reserve Bank of Dallas
GIC Presentation, February 1, 2016
Monterrey, Mexico
Federal Reserve Bank of Dallas
Oil prices plunge
0
20
40
60
80
100
120
140
160
2000 2004 2008 2012 2016
Nominal price, dollars per barrel, weekly
West Texas Intermediate oil price
$31.35
NOTE: Final data point is the average of daily prices from Monday 1/25/16 to Thursday 1/28/16. SOURCE: Energy Information Administration.
Federal Reserve Bank of Dallas
Current oil prices not a record low Real prices of crude oil (December 2015 dollars)
SOURCES: Bureau of Labor Statistics; Energy Information Administration; FRB Dallas calculations.
0
20
40
60
80
100
120
140
160
1977 1984 1991 1998 2005 2012
Refiners' acquisition cost of crude
Real price, dollars per barrel
Federal Reserve Bank of Dallas SOURCE: Energy Information Administration.
Supply/demand mismatch
-1
0
1
2
3
4
75
80
85
90
95
100
2012 2013 2014 2015 2016 2017
Implied change in inventories
Petroleum consumption
Petroleum production
Million barrels per day Million barrels per day
Forecasts
Federal Reserve Bank of Dallas
U.S. and OPEC keep oil market oversupplied Growth in oil production, January 2014-October 2015
SOURCES: Energy Information Administration; Oil Market Report.
1.32
1.08
0.45
0.16 0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
U.S. Iraq Saudi Arabia Other OPEC
Million barrels per day
Federal Reserve Bank of Dallas
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 10-year average in December.
• Weather forecasts adding downside risk to prices – High likelihood of warm weather in various parts of
the OECD through 2016Q1.
Federal Reserve Bank of Dallas
IMPACT ON U.S. ECONOMY
Federal Reserve Bank of Dallas
U.S. oil production
SOURCE: Energy Information Administration.
0
2
4
6
8
10
12
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Million barrels per day
2015 average
Federal Reserve Bank of Dallas
U.S. crude oil production from shale
SOURCE: Energy Information Administration.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan2010
Nov2015
Jan2010
Nov2015
Jan2010
Nov2015
Thousand barrels per day
North Dakota
Texas
1,098
3,401
1,169
236
786
1,652
Utah Colorado Wyoming
New Mexico
Oklahoma
Montana Kansas
Federal Reserve Bank of Dallas
Oil production levels off
SOURCES: Baker Hughes; Energy Information Administration.
600
800
1,000
1,200
1,400
1,600
1,800
2,000
6.9
7.4
7.9
8.4
8.9
9.4
9.9
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16
Million barrels per day Rig count
Crude oil production U.S. rig count
Federal Reserve Bank of Dallas
300
350
400
450
500
550
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5-year range
2015
2014
5-year average
Million barrels
SOURCE: Energy Information Administration.
Crude oil inventories at 80-year highs
Federal Reserve Bank of Dallas
Drilling investment falls with rig count Private fixed investment in mining/exploration
SOURCES: Baker Hughes; Bureau of Economic Analysis.
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
0
20
40
60
80
100
120
140
160
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Bln chained 2009 $ Rig count
Investment in mining/exploration
U.S. rig count OPEC decision
Federal Reserve Bank of Dallas
Impact on U.S. economy
• The U.S. benefits from lower oil prices
• Boosts consumer disposable income – PCE growth: 3.6% in 2Q and 3.2% in 3Q 2015
– Auto sales up 9% in 2015
• Reduces the cost of energy to firms
• Reduces profitability of producing oil – Layoffs, capex declines and bankruptcies in oil patch
• A 50% fall in oil prices may lead to a 0.3% to 1.0% increase in GDP (depending on the model)
• Headline inflation falls
Federal Reserve Bank of Dallas
IMPACT ON STATE ECONOMIES
Federal Reserve Bank of Dallas
Low oil prices benefit most states (Effect of a 50% decline in oil prices on employment)
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. 2013.
-2.0
-4.3
-2.3 -0.7
-1.2 -1.6
-1.7
-0.7
Federal Reserve Bank of Dallas
Energy states doing well in 2014
SOURCE: Bureau of Labor Statistics.
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
ND FL TX GA
UT
NV
OR
CO
WA
CA
NC SC AR
AZ
TN U.S
.D
E ID KY
MA LA WY
MI
WI
OK
NY
AL
NM
MD CT IN IA KS
OH
NH
MN RI
PA IL VT
AK
VA SD MO NJ
NE
MS
MT
ME HI
WV
Texas
U.S.
Percent change (Dec/Dec)
Federal Reserve Bank of Dallas
Energy states lose jobs in 2015
SOURCE: Bureau of Labor Statistics.
-5
-4
-3
-2
-1
0
1
2
3
4
5
ID SC UT FL CA
WA
OR HI
AZ
TN SD GA
MA KY
MD
NC
NV IN MI
U.S
.C
O RI
NY
DE IA NJ
AR
VA
OH
MN NE
ME
TX CT
AL
MO
MS
WI
VT
PA
MT
NH KS
NM IL AK
OK LA WV
WY
ND
Texas U.S.
Percent Change (year-to-date)
Federal Reserve Bank of Dallas
Rig counts still falling
NOTE: Last data point is January 22nd. SOURCE: Baker Hughes.
0
100
200
300
400
500
600
700
800
900
1,000
0
40
80
120
160
200
240
2012 2013 2014 2015
Oklahoma
Texas
Louisiana
North Dakota
Rig count, weekly Rig count, weekly
Federal Reserve Bank of Dallas SOURCE: Bureau of Labor Statistics.
0
20
40
60
80
100
120
140
160
180
2013 2014 2015
Index, Jan. 5 '13 = 100, 4 WMA
North Dakota
Oklahoma
Texas
Louisiana U.S.
Initial jobless claims still high
Federal Reserve Bank of Dallas
Some states rely heavily on oil and gas severance taxes
(Share of 2014 state tax revenues)
SOURCE: U.S. Census Bureau, 2014 Annual Survey of State Government Tax Collections.
72.4
53.8
39.0
18.5
10.9 8.9 7.5 2.1 0.0
0
10
20
30
40
50
60
70
80
AK ND WY NM TX LA OK CO CA
% Taxes Collected
Percent
Federal Reserve Bank of Dallas
WHERE DO WE GO FROM HERE?
Federal Reserve Bank of Dallas
NOTE: Other liquids production growth consists primarily of production growth of natural gas liquids . SOURCE: Energy Information Administration.
Forecast for 2016
-1.0
-0.5
0.0
0.5
1.0
1.5
Y/Y change, million barrels per day
OPEC (+0.51)
OPEC (+0.35)
U.S. (-0.70)
U.S. (+0.27)
Other non-OPEC
(-0.21)
Crude production (-0.4)
Other Liquids Production (+0.62)
World Production (+0.22)
World Consumption (+1.42)
Federal Reserve Bank of Dallas
Crude price forecast
0
20
40
60
80
100
120
Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17
Historical spot price
STEO price forecast
NYMEX futures price
95% NYMEX futures confidence interval
Dollars per barrel
SOURCE: Energy Information Administration.
Federal Reserve Bank of Dallas
Oil price outlook very uncertain
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015 2016 2017
OVX (WTI volatility)
VIX (equity volatility)
Annualized percentage points
SOURCES: Chicago Board Options Exchange; Wall Street Journal.
Federal Reserve Bank of Dallas
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.
Federal Reserve Bank of Dallas
The Oil Market: From Boom to Gloom
Mine Yücel Senior Vice President and
Director of Research
Federal Reserve Bank of Dallas
GIC Presentation, February 1, 2016
Monterrey, Mexico