War Room 24 Jan 2012 Got Oil?
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Transcript of War Room 24 Jan 2012 Got Oil?
War Room 24 Jan 2012
Got Oil?
War Room
•Monthly macro discussion
•Using tools in context
•Update on HiddenLevers Features
•Your feedback welcome
Got Oil?
•Oil Technicals
•Oil Fundamentals
•Macro – Iran, the West + Asia
OIL – TECHNICALSHiddenLevers
OIL SHOCKS + RECESSIONS - LINK
1974 – 1980 – 1990 – 2000 (even 2000!) – 2008 no coincidence
Oil – Technical Outlook
Short Term- autumn rally from $75 to $100- heavy resistance at 100usd mark- oil not backing down from 100usd- as below, so above – 125usd Oil
Long Term- 115usd – Arab spring double top- correction pattern since then- solid support at 92/93usd - break of 92 = oil likely revisits 74usd and below
Oil – Technical Outlook
EU sanctions against Iran baked in
- 98-99usd on WTI today (24/Jan)
- 110-111usd on Brent (24/Jan)
- Fourth loss in five sessions
What does this tell you?
EU debt overshadows the Iran soap opera!
OIL – FUNDAMENTALSHiddenLevers
Oil Trends: WTI Oil vs Brent Oil
WTI and Brent diverged in 2011, but spread has narrowed
Oil: Top 5 Producers and Consumers
US consumption roughly equals other top 5 combined
Top 5 Oil Producers:
1. Russia - 10.3M bpd
2. Saudi Arabia - 10M bpd
3. USA - 7.5M bpd
4. Iran – 4.2M bpd
5. China – 4.1M bpd
Top 5 Oil Consumers:1. USA – 19.1M bpd2. China – 9.1M bpd3. Japan – 4.5M bpd4. India – 3.3M bpd5. Russia – 3.2M bpd
Source: BP Stat. Review of World Energy 2011
Oil Fundamentals: Demand
US Demand Trends
International Demand: China + India Auto Markets
Latest EIA / IEA Global Demand Projections
US Oil Demand Trends
Oil Consumption down since 2005 (pre-recession)
Vehicle-miles down since 2007
Source: US DOT and EIA
Oil Demand: China + EM Auto
China became #1 auto market in 2009, but still has only 1 cars per 25 people (US almost 1:1)
Source: E2AF.com (Nikkei Business Publications)
Oil Demand: China + EM Auto
400M cars = 6M bpd oil = 1.5x Iran's production
China now world's largest auto market 25 people/car in China today 65 people/car in India today ~1 person/car in US If China and India rise to 5 people/car, that's 400M
additional cars
Source: NYU Econ Dept, HiddenLevers
Global Oil Demand Projections
EIA projects 30M bpd demand increase by 2035
Oil Fundamentals: Supply
US Supply Trends: US growth, Bakken Shale
Global Supply Analysis
Marginal Price of Production Today
US Oil Supply Growth
US production has risen 1.6M bpd from 2008 lows Bakken growth accounts for 400k bpd of growth If US surpassed old peak over 11M bpd, would still have
to import 8M bpd
Global Supply Analysis
HiddenLevers analyzed world production data in 2009 and 2011 Classified countries into post-peak or still growing
2009:
14 Countries Growing
With 40% of world oil production
2011:
12 Countries Growing
With 22% of world
oil production
Source: HiddenLevers, BP Statistical Review of World Energy
Oil Supply: Marginal Production Cost
What does Oil really cost?
Saudi Arabia:$20/bbl
Exxon Mobil: $71/bbl
CERA Research:$60-90 for new offshore, oil sands, etc
Source: SEC 10-K Filings, Cambride Energy Research Associates
Chart depicts CERA-estimated production costs for various regions
OIL – 2012 MACRO SITUATIONHiddenLevers
Dec 2011US Decoupling – Dream Killers
• Europe – counterparty risk
• Deflation – USD too strong for growth
• China hard landing – 50% of world econ growth
• Iran + Oil – oil shocks lead to recession
Embargo against Iran-“EU sanctions aimed at avoiding conflict” – British Foreign Secretary William Hague
- China + India + Russia not joining sanctions = sanctions pitting Asia against the West
Who consumes Iran’s oil?
China 20%Japan 17%India 16%South Korea 9% Asia total 70+ %
EU 20%
Source: Bureau of Labor Statistics
EU sanctions ineffective!
Consequences:
1. Israel armed conflict just as likely as US
2. China = ex factor – Darth Vader dilemma
3. 200usd potential (WTI)
4. Safety in CAD?
Scenarios – Iran blockade vs Armed conflict
Consequences:
1. World issue, not just the US:1/3 of seaborne oil, 1/5 of total oil trade
2. Blockade requires a US government response
3. US war ships already in gulf – more coming
4. 125-150usd potential (WTI)
Scenario: Iran Blockade of Straits of Hormuz:Current Projected Impact
Oil $100 $125 25%
Airline Traffic Growth 1.24% -3% -4.24%
DOD Budget Growth 2.10% 3% 1%
Tanker Rates $18700 $940 -95%
Durable Goods 12.1% 12.5% 0.4%
Scenario: Armed Conflict with IranCurrent Projected Impact
Oil $100 $190 90%
Airline Traffic Growth 1.24% -11% -12%
DOD Budget Growth 2.10% 5.38% 3.28%
Tanker Rates $18700 $940 -95%
Durable Goods 12.10% 14.7 2.6%
HiddenLevers - New Features
• Portfolio Stress Test Report v2
• New Asset Types in Screeners
• New currencies added to Scenario Modeling
• PDF visuals improved
Coming soon:
• Fixed Income Support