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28133150 oil-prices-its-impact

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  • 1. OIL PRICE AND IT’S IMPACT
    Sharoni Roy Roll # 7
    Mandar Lalit Roll # 10
    1
  • 2. Agenda
    • Importance Of Oil
    • 3. The Economics of oil
    • 4. Quality Determination
    • 5. Major Oil Price Benchmarks
    • 6. Oil Producers and consumers
    • 7. Oil price volatility
    • 8. Impact of oil prices on global and Indian economy
    • 9. India – Hydrocarbon Vision 2025
    • 10. Future trends in oil prices
    • 11. Alternative energy sources
    2
  • 12. Importance Of Oil
    Uses Of Crude Oil
    OI
    So can you imagine life without oil?
    3
  • 30. The Economics of Oil
    Supply
    Supply
    Supply
    Price
    Price
    Price
    Demand
    Demand
    Demand
    Quantity
    Quantity
    Quantity
    Oil Supply and Demand
    • Both demand and supply are highly inelastic.
    • 31. Small changes to supply or demand curve cause large changes to the price.
    The Oil shocks
    • Drastic reduction in supply.
    • 32. Rapid rise in price.
    • 33. Oil shocks of 1970s , oil shocks of gulf war.
    Ever Increasing Demand
    • Rise of emerging markets.
    • 34. Increase in demand for oil in China and India.
    Politics , Expectation , Risks and Speculation effect demand and supply of oil.
    4
  • 35. Quality Determination
    API gravity
    • Indicates how heavy or light a petroleum liquid is compared to water.
    • 36. API gravity greater than 10 indicates lighter oil otherwise it is considered heavier.
    • 37. API gravity between 40 and 45 commands the highest prices.
    • 38. Light crude oil is more desirable since it produces a higher yield of gasoline.
    Sulphur Content
    • Crude oil is referred as sweet if it contains relatively low Sulphur.
    • 39. Crude oil is referred as sour if it contains relatively high Sulphur.
    • 40. While sweet oil commands a higher price because it has fewer environmental problems and requires less refining.
    The Best Quality
    API Gravity - 40 to 45
    Sulphur – Low (Sweet Oil)
    5
    Best quality oil demands the highest price.
  • 41. Major Oil Price Benchmarks
    • It is the underlying commodity of the NYMEX oil futures contracts.
    • 42. It is of very high quality with an API gravity of 39.6 degrees and contains only
    about 0.24 per cent of sulphur.
    • It is primarily used as a benchmark for much of the Western Hemisphere.
    West Texas Intermediate
    • It is a benchmark for oil from Europe, Africa and West Asia and is traded on the
    ICE exchange (London).
    • Its API gravity is 38.3 degrees, while it contains about 0.37 per cent of sulphur
    • 43. Brent blend is ideal for making gasoline and middle distillates.
    North Sea Brent
    Dubai
    Fateh
    • It is a light sour crude oil extracted from Dubai.
    • 44. It is generally used for pricing Persian Gulf crude oil exports to Asia.
    India uses NYMEX WTI as oil benchmark.
    6
  • 45. Oil Price Volatility
    7
    • Jan 2 ,2008 - $ 100
    • 46. May 09 , 2008 - $125
    • 47. June 26 ,2008 - $ 140
    • 48. July 11 ,2008 - $147.27
    • 49. OPEC output
    • 50. Attacks in Mexico
    • 51. Tensions in Turkey , Iran
    • 52. USD depreciation
    Strong
    demand
    Recession
  • 53. Oil Producers and Consumers
    • In contrast, India consumes two-thirds more oil
    than its produces.
    • America consumes a third more than domestic
    oil production.
    • Although rich in natural resources, Brazil’s oil
    consumption outpaces its fuel production by
    almost 25%.
    • Russia produces about 240% more oil than it
    consumes.
    • Mexico’s oil production was 39% greater than
    domestic consumption
    • Canada output 35% more oil than it used.
    • 54. China generated about 16% more oil than it
    consumed.
    8
  • 55. Impact of Oil Prices on Global Economy
    • Impact variables :
    Import dependency
    Oil Intensity
    • Macro economic factors indicating impact -
    GDP [ Decreases ]
    Inflation [ Increases ]
    Un-employment rate [ Increases ]
    • International capital market valuations of equity and debt in oil-importing countries
    would be revised downwards and those in oil-exporting countries upwards.
    • Importing countries creditworthiness [ Decrease ] leads to large current account deficits.
    • 56. Upward pressure on interest rates due to tighter monetary policies for inflation
    • 57. Rise in value of USD. Stronger dollar <-> greater economic damage to developing countries.
    • 58. Higher subsidies pressure government budgets, increasing political and social tensions.
    9
  • 59. Impact of Oil Prices on Global Economy : Advanced Countries
    10
  • 60. Trends In Import Dependency of India : Oil Import Dependency
    11
    Expected to rise to 94% levels by 2030 !
  • 61. Share of Future Energy Supply In India : Oil Intensity
    12
    Share of Future Energy Supply In India (% )
    Source: India – Hydrocarbon Vision 2025 –Ministry of Petroleum and Natural Gas, India
    Upto 2011 from Technical Note on Energy, Planning Commission, Govt. of India (1998-99).
    Beyond this period the figures have been extrapolated.
  • 62. Impact of Oil Prices on Indian Economy
    When Oil Prices Move Up :
    • GDP is effected negatively.
    • 63. Inflation increases.
    • 64. Government spending on subsidy increases.
    • 65. Exports become weak.
    • 66. Foreign currency reserve deplete.
    • 67. Share market crumbles.
    • 68. Investment decreases.
    13
  • 69. India Hydrocarbon Vision 2025
    14
    • Focus on oil security through 100% coverage of domestic oil and gas.
    • 70. Secure foreign sources sustainable long term supplies.
    • 71. Meet deficit of oil by increasing Natural Gas supply and availability.
    • 72. Maintain adequate levels of self-sufficiency in refining.
    • 73. Establish adequate strategic storage of crude and petroleum products in different
    locations.
    • Open up the hydrocarbon market so that there is free and fair competition.
    • 74. Create a policy framework for cleaner and greener fuels.
    • 75. Have a fair pricing policy.
    Source : India Hydrocarbon Vision 2025, Ministry of Petroleum and Natural Gas
  • 76. Future Trends in Oil Prices
    15
    Price to stabilize around $90 per barrel.
  • 77. Alternate Energy Sources
    16
  • 85. THANK YOU
    17