OIL MARKET STRUCTUREBy Dr. Paul CottrellSource material from the Center For Strategic And International Studies

HISTORICAL AND PROJECTED OIL PRICES

There have been previous oil prices crashes.p p

BRENT CRUDE OIL

July 2014 started the major decliney j

WTI FORECAST

GLOBAL OIL DEMAND WITH GDPStrong correlation g

GLOBAL LIQUIDS CONSUMPTION

Change in U.S. consumption in 2016 (less) g p ( )

NORTH AMERICA OIL PRODUCTION

Main growth in production from N.A.g p

OIL PRICE

Lower oil prices are in theory simulative p yeconomicallyBut may pension funds and institutionals are i t d i th k tinvested in the energy markets

Not good for 401k and pension plansLower oil pricesLower oil prices

Might create contagious sell-offs and geoploticalinstability

AVERAGE HOUSEHOLD ENERGYEXPENDITURES

U.S. household energy expenditure down.gy p

+ / - EXTERNALITIES FOR OIL

Increases in pricespSocial unrest in Venezuela leads to supply disruptionsISIL disrupts Iraqi exportsISIL disrupts Iraqi exportsIranian conflictOther social unrests leading to supply disruptionsOPEC cuts production

Decreases in pricesWo ld GDP g o th ed cedWorld GDP growth reducedSaudi Arabia keeps production at 9.6-9.7 million bbl/d in 2016Iran conflicts reduced in region

GEOGRAPHIC INFORMATION SYSTEM (GIS)

ENERGY PRODUCTION IN NORTH AMERICA

Production and exports increasing for condensates

CRUDE OIL FLOWS IN NORTH AMERICA

PRODUCTION IN BAKKEN ANDTRANSPORTATION

RAIL TO EAST COAST

RIG COUNTS

DAY RATE FOR DRILLING RIG

PLANNED OIL INFRASTRUCTUREINVESTMENT

MIDSTREAM CONCLUSIONS

Rapidly responded to tight oil and oil sand p y p gproduction to connect markets by pipeline and tail to move crude to refiners.

R fi bl t t k t Refiners were able to response to market opportunities and export products quicker.

More flexibility for refiners and producers to seek best crude sourcing and best place to place refined products.Lower oil pricesLower oil prices

Lowers need to expand pipeline capacityNeed to export crude to due to production growth

Otherwise logjam in Gulf Coast.

POSSIBLE WAYS TO TRADE OIL/GASMARKETS

Oil / Gas futures “CL” or “NG” contractsETF

USO (long)GUSH (3X long)DRIP (3X short)DIG (2X long) DIG (2X long) UCO (2X long)SZO (short)DTO ( X h )DTO (2X short)XLE (long)DNO (short)( )