Oil prices Decline, Causes and Impacts Associate prof. Saleh Mothana Obadi, PhD. Institute of Economic Research Slovak Academy of Sciences ekonbadi@savba.sk EESC, Bratislava, October 27, 2016
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
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 160 140 133,93 120 100 80 60 World Dubai Brent WTI 40 20 0 3 Source: Own based on World Bank database, 2016
Three periods of oil prices collaps 2008M6-2009M1 2014M6-2015M01 2015M6-2016M1 140 132 120 100 108 80 60 61 47, - 57% 40 44, -67% 20 30, -52% 0 2008M06 2008M07 2008M08 2008M09 2008M10 2008M11 2008M12 2009M01 4 Source: Own based on World Bank database, 2016
Oil prices in USD/bl and monthly changes in % 120,00 20 108,37 16 15 100,00 Oil prices in USD 9 9 10 80,00 5 60,00 3-3 -5-4 -4 62,51-2 1 1 0-5 40,00-10 -11 47,11-11 -8-10 20,00 0,00-21 Chnage in %(right axis); - 22-16 -15 29,78-15 -19-20 -25 5 Source: Own based on World Bank database, 2016 Obadi, S.M., 27 October 2016
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
Global supply and demand of oil, mil.bl/d 98 96 94 94,2 94,8 95,5 96 95,1 95,7 92 90 90,3 91,5 90,5 90 92,4 91,4 92 92 93,9 94 93 93,1 Supply Demand 88 86 84 1Q13 2Q13 3Q13 4Q13 2013 1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 3Q15 4Q15 2015 1Q16 7 Source: Own based on Market indicators, Monthly bulletin, 2013-2016, OPEC.
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Global supply and demand of oil, mil.bl/d Stock changes and balance (right axis) Supply Demand 99 6 96 5 4 93 90 87 1,4 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 3 2 1 0 84-0,4-0,2-1,2-0,6-0,8-0,9-0,5-0,4-0,9-0,6-0,2-1 -2 81-3 2011 2012 2013 2014 2015 2016 2017 8 Source: Own based on EIA, 2016.
1997M01 1997M08 1998M03 1998M10 1999M05 1999M12 2000M07 2001M02 2001M09 2002M04 2002M11 2003M06 2004M01 2004M08 2005M03 2005M10 2006M05 2006M12 2007M07 2008M02 2008M09 2009M04 2009M11 2010M06 2011M01 2011M08 2012M03 2012M10 2013M05 2013M12 2014M07 2015M02 2015M09 2016M04 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.
OPEC s decision (27. November 2014) to leave their production unchanged 10
Production of oil and LNG, in mil.bl/d 12 11,26 mbl/d 10 8 6 9,95 Meeting of 18 countries with total oil production in January 2016, with production about 49.25 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
2004M01 2004M05 2004M09 2005M01 2005M05 2005M09 2006M01 2006M05 2006M09 2007M01 2007M05 2007M09 2008M01 2008M05 2008M09 2009M01 2009M05 2009M09 2010M01 2010M05 2010M09 2011M01 2011M05 2011M09 2012M01 2012M05 2012M09 2013M01 2013M05 2013M09 2014M01 2014M05 2014M09 2015M01 2015M05 2015M09 2016M01 Price of barrel, in USD What is the fair price of barrel of oil? dif.(right axis) Average Fair price 140 70 120 50 100 30 80 10 60-10 40-30 20-50 0-70 12 Source: Own based on World Bank, 2016
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
The impact of oil prices decline on oil exporting countries (OEC) Lower revenues OPEC 500-600 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
Estimated losses of oil revenues, bill. USD SAU RUS NOR UAE DZA KWT IRQ VEN NGA IRN LBY MEX QAT BRA 0 20 40 60 80 100 120 140 160 180 BRA QAT MEX LBY IRN NGA VEN IRQ KWT DZA UAE NOR RUS SAU Bill. USD 9 16 24 30 31 39 43 47 52 56 63 100 142 161 15 Source: Own estimation based on the database of OPEC and COMTRADE, 2016
The impact of oil price decline on GDP, 2015, in % KWT LBY SAU IRQ UAE VEN DZA IRN QAT RUS NOR NGA MEX BRA 0 5 10 15 20 25 30 35 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 7 8 8,5 8,5 10 16 19,5 21 27 29,5 16 Source: Own estimation based on the database of OPEC and COMTRADE, 2016
Breakeven oil price, in USD/bl Brazil 70 70 Texas USA 60 60 60 60 Canada 50 100 Russia 40 60 North Dakota Eagle Ford 40 40 70 70 Min Max Permain basin 40 80 Aljashka Venezuala 30 30 40 40 Nigeria 20 40 S. Arabia 5 10 0 20 40 60 80 100 120 17 Source: Own estimation based on the database of IMF, 2016
Fiscal breakeven oil price Libya Algeria Iran Nigeria Venezuela Russia Saudia Arabia Iraq UAE Kuwait Qatar Norway 40 78 77 81 105 104 101 131 131 123 118 184 0 50 100 150 200 18 Source: Tim bowler (January 19, 2015). BBC.
Macroeconomic impact of oil price decline on oil importing countries (OIC) Price AD SAS1 SAS2 P1 P2 AD Y1 Y2 Real GDP 19
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
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
Trade balance of crude oil in OIC, as % of GDP 0-2 -2,1-2,5-4 -3,2-3,2-6 -5,1-5,3-5,7-5,7-5,9-8 -10-9,8-12 Philippines China Indonesia Japan H.Kong India Singapore Taiwan South Korea Thailand 22 Source: Foo, N. (2015), International Association for Energy Economics
Trade balance of crude oil (33 SITC) in selected OIC, in bill. USD 0,00 Czech Hungary Poland Slovakia -2,00-1,36-2,27-2,23-4,00-3,80-4,06-6,00-8,00-6,66-8,32 2014 2015-10,00-12,00-14,00-14,41-16,00 23 Source: Own calculation based on database of COMTRADE, 2016
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
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
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 = 0.5-0.8% growth of WE in 2016, ( 688 bill. USD) 26
Thank you for your attention 27 Associate prof. Saleh Mothana Obadi, PhD. Institute of Economic Research Slovak Academy of Sciences ekonbadi@savba.sk