Oil prices Decline, Causes and Impacts

Transcription

1 Oil prices Decline, Causes and Impacts Associate prof. Saleh Mothana Obadi, PhD. Institute of Economic Research Slovak Academy of Sciences EESC, Bratislava, October 27, 2016

2 Outlines Development of oil prices in the last decade Comparison of different oil price collapses Cuases of oil prices decline The impact of oil price decline on the oil exporting and importing economies Who are the winners and losers? Conclution remarks 2

3 2003M 2003M 2004M 2004M 2004M 2005M 2005M 2005M 2006M 2006M 2006M 2007M 2007M 2007M 2008M 2008M 2008M 2009M 2009M 2009M 2010M 2010M 2010M 2011M 2011M 2011M 2012M 2012M 2012M 2013M 2013M 2013M 2014M 2014M 2014M 2015M 2015M 2015M 2016M 2016M Development of Oil prices in the last decade, USD/bll , World Dubai Brent WTI Source: Own based on World Bank database, 2016

4 Three periods of oil prices collaps 2008M6-2009M1 2014M6-2015M M6-2016M , - 57% 40 44, -67% 20 30, -52% M M M M M M M M01 4 Source: Own based on World Bank database, 2016

5 Oil prices in USD/bl and monthly changes in % 120, , ,00 Oil prices in USD , , , , , ,00 0,00-21 Chnage in %(right axis); , Source: Own based on World Bank database, 2016 Obadi, S.M., 27 October 2016

6 Causes of Oil price decline Surplus of Oil supply (about 2 mil. bl/d): Shale Oil Geopolitical factors versus recovery of oil production in Libya, Iraq Raising production in non-opec Low demand in (OECD) Appreciation of US Dollar Decision of OPEC to leave oil production target unchanged Large oil inventory in most OECD. 6

7 Global supply and demand of oil, mil.bl/d ,2 94,8 95, ,1 95, ,3 91,5 90, ,4 91, , ,1 Supply Demand Q13 2Q13 3Q13 4Q Q14 2Q14 3Q14 4Q Q15 2Q15 3Q15 4Q Q16 7 Source: Own based on Market indicators, Monthly bulletin, , OPEC.

8 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Global supply and demand of oil, mil.bl/d Stock changes and balance (right axis) Supply Demand ,4 0,5 0,2 0,5 0,7 0,5 2,0 1,7 2,0 1,3 2,3 1,4 0,8 0,4 0,8 0,4 0, ,4-0,2-1,2-0,6-0,8-0,9-0,5-0,4-0,9-0,6-0, Source: Own based on EIA, 2016.

9 1997M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M04 Oil prices and USD/EUR exchange rate 200,00 180,00 160,00 140,00 120,00 100,00 80,00 Oil price USD Index 60,00 40,00 20,00 0,00 9 Source: Own based on World bank database and fxtop.com, 2016.

10 OPEC s decision (27. November 2014) to leave their production unchanged 10

11 Production of oil and LNG, in mil.bl/d 12 11,26 mbl/d ,95 Meeting of 18 countries with total oil production in January 2016, with production about mbl/d Note: + denote to oil production and NG 4,45 4 2,85 2,7 2,61 2,45 2,3 2 1,85 1,8 1,74 1,05 1,03 0,8 0,71 0,64 0,56 0,5 0 RUS KSA+ IRQ+ IRN+ UAE+ MEX KWT+ VEN+ ANG+ NIG+ KAZ ALG+ OMN AZR+ IND+ QAR+ ECR+ BRN 11 Source: Own based on Aljazeera.net, 2016

12 2004M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M01 Price of barrel, in USD What is the fair price of barrel of oil? dif.(right axis) Average Fair price Source: Own based on World Bank, 2016

13 The impact of oil price decline on economy Generally, the impact is: Negative impact on oil exporting countries (OEC)) Positive impact on oil imprting countries (OIC) Indirect imapcts: Positive impact (diversification of revenues etc.))(oec)) Negative impact (deflation, etc.) (OIC) 13

14 The impact of oil prices decline on oil exporting countries (OEC) Lower revenues OPEC bill. USD Lower reserves Raising of external debt Deficit of public finance Lower government investment Depreciation of domestic currency Low job creation Pressures on social security benefits 14

15 Estimated losses of oil revenues, bill. USD SAU RUS NOR UAE DZA KWT IRQ VEN NGA IRN LBY MEX QAT BRA BRA QAT MEX LBY IRN NGA VEN IRQ KWT DZA UAE NOR RUS SAU Bill. USD Source: Own estimation based on the database of OPEC and COMTRADE, 2016

16 The impact of oil price decline on GDP, 2015, in % KWT LBY SAU IRQ UAE VEN DZA IRN QAT RUS NOR NGA MEX BRA BRA MEX NGA NOR RUS QAT IRN DZA VEN UAE IRQ SAU LBY KWT Impact on GDP, in % 0,4 2 5,5 5, ,5 8, , ,5 16 Source: Own estimation based on the database of OPEC and COMTRADE, 2016

17 Breakeven oil price, in USD/bl Brazil Texas USA Canada Russia North Dakota Eagle Ford Min Max Permain basin Aljashka Venezuala Nigeria S. Arabia Source: Own estimation based on the database of IMF, 2016

18 Fiscal breakeven oil price Libya Algeria Iran Nigeria Venezuela Russia Saudia Arabia Iraq UAE Kuwait Qatar Norway Source: Tim bowler (January 19, 2015). BBC.

19 Macroeconomic impact of oil price decline on oil importing countries (OIC) Price AD SAS1 SAS2 P1 P2 AD Y1 Y2 Real GDP 19

20 Impact of oil prices decline on OIC Current account balance India, China, South Korea, Japan etc. Lower subsidies on fuels (India, indonesia, Egypt etc.) Lower deficit of public finance 20

21 The impact of 10% oil price drop on GDP growth and inflation, in %. 0,5 0,45 0,45 0,4 0,3 0,3 0,25 0,25 0,2 0,2 0,15 0,15 0,1 0,1 0-0,1-0,025-0,1 GDP Inflation -0,2-0,15-0,3-0,25-0,25-0,25-0,4-0,5-0,4-0,4-0,45 South Korea Thailand Philippines India Taiwan H. Kong China Singapor Indonesia 21 Source: Foo, N. (2015), International Association for Energy Economics

22 Trade balance of crude oil in OIC, as % of GDP ,1-2,5-4 -3,2-3,2-6 -5,1-5,3-5,7-5,7-5, ,8-12 Philippines China Indonesia Japan H.Kong India Singapore Taiwan South Korea Thailand 22 Source: Foo, N. (2015), International Association for Energy Economics

23 Trade balance of crude oil (33 SITC) in selected OIC, in bill. USD 0,00 Czech Hungary Poland Slovakia -2,00-1,36-2,27-2,23-4,00-3,80-4,06-6,00-8,00-6,66-8, ,00-12,00-14,00-14,41-16,00 23 Source: Own calculation based on database of COMTRADE, 2016

24 Impact of oil prices decline on OIC Positive impact for oil importing economies: For EU economies : 0.3 to 0.4 % GDP - increased profit margins - cheap transport - lower costs for heating - more purchasing power Leading to enhancing energy security 24

25 Impact of oil prices decline on OIC Negative impact: Lower inflation fear of Deflation Lower comsumption and investment By pushing consumer price levels down, the fall in oil prices could lead indirectly to lower wage growth Decreased investment in the oil sector Decreasing investment in the sector of renewable energy resources Increasing consumption of fossil fuels and increasing CO2 emissions 25

26 Conclusion remarks The impact of oil prices decline on world economy: Negative impact on oil exporting economies Positive impact on oil importing economies Positive impact on world economy = % growth of WE in 2016, ( 688 bill. USD) 26

27 Thank you for your attention 27 Associate prof. Saleh Mothana Obadi, PhD. Institute of Economic Research Slovak Academy of Sciences