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Sarah EmersonESAI Energy, LLC
[email protected]‐245‐2036
EIA Workshop on Physical and Financial Oil Market LinkagesSeptember 28, 2016
Geopolitics and Oil Prices
Not Much Oil Demand
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480 285
438 14
346 363
459
333
560
348
278 250
(400)
‐
400
800
1,200
1,600
2,000
2,400
2013 2014 2015 2016 2017 2018
000 b/d
Global Oil Demand Growth By Main Product
LPG
Naphtha
Gasoline
Jet Fuel
Diesel
Fuel Oil
Total
Still Some Supply
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(1,600)
(1,200)
(800)
(400)
0
400
800
1,200
1,600
2,000
2,400
2013 2014 2015 2016 2017 2018
000 b/d Non‐OPEC Crude and Condensate Annual Growthby Region
OECD OIL SANDS FSU AFRICA LATIN AM Series5 Series4
Surplus Persists Absent Significant Supply Adjustment
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Demand Demand
Demand
Demand
Demand
Non
‐OPEC
Non
‐OPEC
Non
‐OPEC
Non
‐OPEC
Non
‐OPEC
OPEC
OPEC
OPEC
OPEC
OPEC
(2.5)
(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2.0
2.5
2014 2015 2016 2017 2018
(million b/d) Annual CHANGE in Global "Oil" Supply and Demand 2014‐2018
Oil Demand Non‐OPEC Non‐OPEC NGLs and Alternative Fuels OPEC NGLs OPEC Surplus
Structural (Not Cyclical) Change in Geopolitics related to Oil
• Iraq no Longer occupied, Iran no longer under sanctions• Shiite Crescent is greater threat to Sunni power• Russia renewed interest in the AG region• China renewed interest in the AG region• Rise of transnational threats: Al Qaeda, ISIS• Rise of transnational groups: Kurds, refugees• Tension between inter‐national solutions and transnational threats• Multi‐Party civil war in Syria• U.S. foreign policy shift towards Asia Pacific• Current and Potential failed states: Libya, Yemen, Syria, Venezuela, Nigeria,
Ecuador, Algeria• Low crude oil prices• Shale and Oil Sands potential• North America, Europe shifting demand to natural gas and renewables,
vehicle fuel economy gains
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Geopolitics of Oil and Producer‐Consumer Relations
Instability Supply Disruption
Price Increase
Economic Pain
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Instability Lower Revenues
Less Oil Demand, Lower Prices
More Self Sufficiency, changing Energy Mix
Prod
ucer
Consumer
U.S. Goals: Further Integration (?) with
the Global MarketsDefeat Islamic State
• Supporting Shale Development• Reducing foreign oil dependence• Exporting Crude Oil and LNG• Quality oil balancing (export light,
import heavy)• Opposing IS• Competition with Arab Gulf Producers• Bias towards free trade• Naval Superiority
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Russian Goals: Russia as a Great Power
• Played Georgia, Ukraine cards effectively against NATO expansion in Europe
• Prevent regime change in Syria and open door to closer collaboration with Iran and Iraq
• More leverage in the region versus U.S.
• Sell arms to region• Counter radical Islamist Groups
that threaten Russia• Burnish Putin legacy even as Russia
struggles with low oil prices
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Chinese Goals: Use Spare Industrial
Capacity to Grow Markets for Chinese goods
• China’s Belt and Road Initiative• New Railway to Iran• Trade talks with Pakistan India
and Myanmar• Turkey as gateway to Europe• Focus on South China Sea is
both economic and military
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Meanwhile the Situation at Home(U.S. Crude Imports by Source)
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‐2000
0
2000
4000
6000
8000
10000
12000
1973 1978 1983 1988 1993 1998 2003 2008 2013
000 b/d
Other Persian Gulf Africa
North Sea Latin America Canada
1706 1899 2149 1997 1851 1488
1814 1378 867578
269259
32283121
2915
24642361
2477
19702225
2425
25792882 3169
‐1000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2010 2011 2012 2013 2014 2015
000 b/d
Other Persian Gulf Africa
North Sea Latin America Canada
7351
2016 YTD Imports:78032016 YTD Exports: 481
42 47 67 134 351 458
Source: EIA
Exports
We Can End Arab Gulf Imports – If We Want
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Geographic Realignment of Market?
Accelerated economic integration East of Suez
Declining oil demand in the West
Latent Nationalism and Dissatisfaction with Globalization
Frustration with inter‐national solutions addressing transnational threats like IS
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Geographic Realignment(OPEC Countries in Blue)
Final Thoughts• Fundamentally weak market (struggling to return to $60) for years absent a
supply disruption/reduction• Geopolitics driven by consuming countries policies and producing country events• U.S. China, Russia’s interests complicate geopolitics of oil
Russia ‐great power behavior China ‐grow markets U.S. ‐free trade, integration with global markets
‐ but, less dependence on imports‐limited military engagement‐defeat IS
• Geopolitics and Oil Price Geopolitical Pressure on Producers rather than Consumers At least 1.0 million b/d disruption to impact market (maybe more
depending on Libya) Prices have limited upside given potential production Investment shortfall is overestimated Drop in costs offsets drop in investment to a degree Demand continues to be modest
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