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