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Crude oil is a naturally-occurring substance found in
certain rock formations in the earth.
It is a dark, sticky liquid ...
Oil was formed from the remains of animals and plants
that lived millions of years ago in a marine (water)
environment bef...
Crude Oil and Commodity Prices
March, Wednesday 11 2015 - 13:50:46
WTI Crude Oil Brent Crude Oil
$48.29 ▼-1.71 -3.54% $56....
Price of oil
The price of oil, or the oil price, generally refers to the spot price of
a barrel of benchmark crude oil.
...
Benchmark pricing
After the collapse of the OPEC-administered
pricing system in 1985, and a short lived experiment
with n...
Brent Crude is a major trading classification of
sweet light crude oil that serves as a major
benchmark price for purchas...
There have been successive price regimes since the
beginnings of the 20th Century:Between 1930 and 1970, it
was the so ca...
In 2014, a number of events will go down in history as
major, market-moving events. From an economic viewpoint,
though, p...
During an economic recession, the world economic activity
contracts and demand for oil declines.
When demand for any com...
Technological changes tend to be long-lasting and ongoing.
“Moore’s Law” refers to the computer industry and states that
...
 The world’s annual Global Economic Output (GDP) was $69
trillion as of last summer. According to the Oil Market Intellig...
In June 2014, the price of Brent crude was up around $115 per
barrel. As of January 23, 2015, it had fallen by more than ...
By late 2014, world oil supply was on track to rise much
higher than actual demand.A lot of unused oil was simply
being s...
Crude oil price move up or down, inflation
follows in the same direction.
Crude oil price increases, it’s directly
affec...
Effects on Transportation
61%
5%
14%
7%
13%
Transport Non-Energy
Other sector Electricity and Heating
The transport sector is clearly dominant in
petroleum product consumption.
Transport sector consumes 60% of total
petrol...
Oil is not only a physical commodity bought, sold and traded on
global markets; it has also become an important financial...
That would represent a nearly 50 percent deflation in oil prices
that could potentially set in motion a more generalized ...
Oil consumption in India
Imports and domestic oil production in India
Market Share of Oil and Gas Companies
28%
22%20%
18%
11%
1%
Market Share of Oil and Gas
Companies
IOCL
ONGC
Reliance
HPCL
...
The Petroleum Act to control issues relating to
import, transport, storage, production, refining
and blending of petroleum...
Crude oil is healthy and needed for several reasons.
The big oil and gas companies have been taking
advantage of us with t...
When Oil prices Moves UP :
Inflation increases
Govt. spending on subsidy increases
Foreign currency reserves reduce
Ou...
Oil prices and global economy
Oil prices and global economy
Oil prices and global economy
Oil prices and global economy
Oil prices and global economy
Oil prices and global economy
Oil prices and global economy
Oil prices and global economy
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Oil prices and global economy

A General study about Oil prices and global economy

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Oil prices and global economy

  1. 1. Crude oil is a naturally-occurring substance found in certain rock formations in the earth. It is a dark, sticky liquid classified as a hydrocarbon. This means, it is a compound containing mainly carbon and hydrogen. Crude oil is highly flammable and can be burned to create energy. Petroleum= Petra (Rock) + Oleum (Oil) (Latin)
  2. 2. Oil was formed from the remains of animals and plants that lived millions of years ago in a marine (water) environment before the dinosaurs. Over the years, the remains were covered by layers of mud. Heat and pressure from these layers helped the remains turn into what we today call crude oil . The word "petroleum" means "rock oil" or "oil from the earth."
  3. 3. Crude Oil and Commodity Prices March, Wednesday 11 2015 - 13:50:46 WTI Crude Oil Brent Crude Oil $48.29 ▼-1.71 -3.54% $56.39 ▼-2.14 -3.79%
  4. 4. Price of oil The price of oil, or the oil price, generally refers to the spot price of a barrel of benchmark crude oil. The demand for oil is highly dependent on global macroeconomic conditions. According to the International Energy Agency, high oil prices generally have a large negative impact on global economic growth. Organization of the Petroleum Exporting Countries (OPEC) The Organization of the Petroleum Exporting Countries (OPEC) was formed in 1960 to try to counter the oil companies cartel, which had been controlling posted prices since the so- called 1927 Red Line Agreement and 1928 Achnacarry Agreement, and had achieved a high level of price stability until 1972. Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela
  5. 5. Benchmark pricing After the collapse of the OPEC-administered pricing system in 1985, and a short lived experiment with netback pricing, oil-exporting countries adopted a market-linked pricing mechanism. First adopted by PEMEX in 1986, market-linked pricing received wide acceptance and by 1988 became and still is the main method for pricing crude oil in international trade. The current reference, or pricing markers, are Brent, WTI, and Dubai/Oman.
  6. 6. Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. Brent Crude is extracted from the North Sea. The other well-known classifications (also called references or benchmarks) are the OPEC Reference Basket, Dubai Crude, Oman Crude, Urals oil and West Texas Intermediate (WTI).
  7. 7. There have been successive price regimes since the beginnings of the 20th Century:Between 1930 and 1970, it was the so called “seven sisters pricing regime”, where the prices where controlled and posted by oil companies. Then, until 1985, the prices were controlled by the producing countries, a period known as the Organization of Petroleum Exporting Countries (OPEC) pricing regime. After a short period of netback pricing regime (crude oil price was tied to the price of refined products), the reference pricing regime was adopted, this is the system that we still use today.
  8. 8. In 2014, a number of events will go down in history as major, market-moving events. From an economic viewpoint, though, perhaps no other event will have a more significant and long-lasting impact than the collapse of oil prices. At this time last year, oil was trading well above $100 per barrel. Last week, the price of a barrel of West Texas Intermediate oil traded at less than $50. Over the years, oil prices have fluctuated. The last two major oil price declines were driven by central bank policy errors – monetary contractions which led to global economic recessions.
  9. 9. During an economic recession, the world economic activity contracts and demand for oil declines. When demand for any commodity contracts, prices decline. The current oil price decline is not accompanied by an economic growth contraction. It’s the first of this type of decline the world has seen in many decades. The current oil price decline isn’t being driven by a decline in demand, instead it’s being driven by an increase in supply. With technological advancements, oil can now be coaxed out of the ground. The amount of oil which can be squeezed from rock shale deposits is stunning.  Oil production in the United States and Canada is now outstripping production in Saudi Arabia. Last year, when the Saudi’s announced they were not cutting production to “defend” prices, market activity moved oil prices downward.
  10. 10. Technological changes tend to be long-lasting and ongoing. “Moore’s Law” refers to the computer industry and states that the number of transistors in an integrated circuit doubles very two years. We’ve seen massive efficiency and productivity improvements in the computers we use. Once made, changes driven by technological advancements –irrespective of the industry — tend to continue. These changes are nothing new. They represent the latest cyclical “bust” in oil prices, continuing the long-wave cycle of booms and busts the industry experienced in the past.
  11. 11.  The world’s annual Global Economic Output (GDP) was $69 trillion as of last summer. According to the Oil Market Intelligence report, the world’s consumers of oil bought $3.8 trillion (when prices were at $100 per barrel) of oil to produce that $75 trillion of economic output. With oil at $50 per barrel, that same production can occur with an energy “cost” of $1.9 trillion. This represents a production “savings” of $1.9 trillion, or 2.73 percent of global GDP. Now, this isn’t to say that global GDP will be 2.73 percent higher due to the oil price decline, but rather the economic growth of nations consuming oil will benefit mightily at the expense of oil-producing nations.
  12. 12. In June 2014, the price of Brent crude was up around $115 per barrel. As of January 23, 2015, it had fallen by more than half, down to $49 per. For much of the past decade, oil prices have been high — bouncing around $100 per barrel since 2010 — because of soaring oil consumption in countries like China and conflicts in key oil nations like Iraq. Oil production in conventional fields couldn't keep up with demand, so prices spiked. High prices spurred companies in the US and Canada to start drilling for new, hard-to-extract crude in North Dakota's shale formations and Alberta's oil sands. Then, over the last year, demand for oil in places like Europe, Asia, and the US began tapering off, thanks to weakening economies and new efficiency measures.
  13. 13. By late 2014, world oil supply was on track to rise much higher than actual demand.A lot of unused oil was simply being stockpiled away for later. So, in September, prices started falling sharply. As prices slid, many observers waited to see whether OPEC, the world's largest oil cartel, would cut back on production to push prices back up. (Many OPEC states, like Saudi Arabia and Iran, need higher prices to balance their budgets.) But at its big meeting last November, OPEC did nothing. Saudi Arabia didn't want to give up market share and refused to cut production — in the hopes that lower prices would help throttle the US shale boom. That was a surprise. So oil went into free-fall.
  14. 14. Crude oil price move up or down, inflation follows in the same direction. Crude oil price increases, it’s directly affects the rate inflation. When the prices went to high of more than $100/barrel in 2008, the inflation also went up to 12.27% which was highest for India in previous two decade.
  15. 15. Effects on Transportation 61% 5% 14% 7% 13% Transport Non-Energy Other sector Electricity and Heating
  16. 16. The transport sector is clearly dominant in petroleum product consumption. Transport sector consumes 60% of total petroleum products. Road transport accounts for an even higher percentage of energy consumption
  17. 17. Oil is not only a physical commodity bought, sold and traded on global markets; it has also become an important financial asset since the USA and the world began liberalized trading of oil commodity futures (i.e. a financial security) in the late 1990s on a global scale. Just as declines in oil spills over to declines of other physical commodities (e.g. copper, iron ore, gold, etc.), oil financial securities (i.e. oil commodity futures) price deflation can also ‘spill over’ to other financial assets, causing their decline as well, in a ‘chain like’ effect. ‘financial asset chain effect’ could arise if oil prices continued to decline below USD$60 a barrel.
  18. 18. That would represent a nearly 50 percent deflation in oil prices that could potentially set in motion a more generalized global financial instability event, possibly associated with a collapse of the corporate junk bond market in the USA that has fueled much of USA shale production. Saudi Arabia and its neocon friends in the USA are targeting both Iran and Russia with their new policy of driving down the price of oil. The impact of oil deflation is already severely affecting the Russian and Iranian economies. In other words, this policy or promoting global oil price deflation finds favor with significant political interests in the USA, who want to generate a deeper disruption of Russian and Iranian economies for reasons of global political objectives. It will not be the first time that oil is used as a global political weapon, nor the last.
  19. 19. Oil consumption in India Imports and domestic oil production in India
  20. 20. Market Share of Oil and Gas Companies 28% 22%20% 18% 11% 1% Market Share of Oil and Gas Companies IOCL ONGC Reliance HPCL BPCL
  21. 21. The Petroleum Act to control issues relating to import, transport, storage, production, refining and blending of petroleum was already in place since 1934. Further, the Oil Fields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959 provided regulatory framework for domestic exploration and production of Oil & Gas.
  22. 22. Crude oil is healthy and needed for several reasons. The big oil and gas companies have been taking advantage of us with their ridiculously high gas prices over the last seven years. And the cut in their share price should be great for investors. This allows them to build or re-enter new positions at a better price with a higher dividend yield. The Indian oil and gas sector is one of the six core industries in India and has very significant forward linkages with the entire economy.
  23. 23. When Oil prices Moves UP : Inflation increases Govt. spending on subsidy increases Foreign currency reserves reduce Our export becomes weaker GDP is affected negatively Share market crumbles Investment decreases

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