OIL PRICE AND IT’S IMPACT

SharoniRoy Roll # 7 MandarLalit Roll # 10
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AGENDA

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IMPORTANCE OF OIL §Gasoline §Diesel §Heating oil §Jet fuel §Bunker fuel

Uses Of Crude Oil

§Fibers §Rubber §Plastics §Dyes §Paints §Fertilizers §Pesticides §Medicines §Food additives §Make-up

OI

§Detergent §Candles §Photographic film §There are more than 4000 petrochemical prod

So can you imagine life without oil?

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THE ECONOMICS OF OIL

Supply

Supply

Supply

Price

Price

Demand

Demand

Price

Demand

Quantity
Oil Supply and Demand

Quantity
The Oil shocks

Quantity
Ever Increasing Demand § §Rise of emerging markets. §Increase in demand for oil in China and India.

§ §Drastic reduction in supply. upply are highly inelastic. §Rapid rise in price supply or demand curve cause large changes to the price. . §Oil shocks of 1970s , oil shocks of gulf war.

Politics , Expectation , Risks and Speculation effect demand and supply of oil.
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QUALITY DETERMINATION

API gravity

§Indicates how heavy or light a petroleum liquid is compared to water. §API gravity greater than 10 indicates lighter oil otherwise it is considered heavier. §API gravity between 40 and 45 commands the highest prices. §Light crude oil is more desirable since it produces a higher yield of gasoline. §Crude oil is referred as sweet if it contains relatively low Sulphur. §Crude oil is referred as sour if it contains relatively high Sulphur. §While sweet oil commands a higher price because it has fewer environmental problems and requires less refining.

Sulphur Content

The Best Quality API Gravity - 40 to 45 Sulphur – Low (Sweet Oil)

Best quality oil demands the highest price.
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MAJOR OIL PRICE BENCHMARKS

§ It is the underlying commodity of the NYMEX oil futures contracts. st Texas Intermediate It is of very high quality with an API gravity of 39.6 degrees § and contains only about 0.24 per cent of sulphur. § It is primarily used as a benchmark for much of the Western Hemisphere. § It is a benchmark for oil from Europe, Africa and West Asia and is traded on the North Sea Brent ICE exchange (London). § Its API gravity is 38.3 degrees, while it contains about 0.37 per cent of sulphur § Brent blend is ideal for making gasoline and middle distillates.

Dubai Fateh

§It is a light sour crude oil extracted from Dubai. §It is generally used for pricing Persian Gulf crude oil exports to Asia.

India uses NYMEX WTI as oil benchmark.
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OIL PRICE VOLATILITY

§Jan 2 ,2008 - $ 100 §May 09 , 2008 - $125 §June 26 ,2008 - $ 140 §July 11 , 2008 - $147 . 27

§OPEC output §Attacks in Mexico §Tensions in Turkey , Iran §USD depreciation

Strong demand

Recession

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OIL PRODUCERS AND CONSUMERS

§Russia produces about 240% more oil than it consumes. §Mexico’s oil production was 39% greater than domestic consumption §Canada output 35% more oil than it used. §China generated about 16% more oil than it consumed.

§In contrast, India consumes two-thirds more oil than its produces. §America consumes a third more than domestic oil production. §Although rich in natural resources, Brazil’s oil consumption outpaces its fuel production by 8 almost 25%.

IMPACT OF OIL PRICES ON GLOBAL ECONOMY §Impact variables : 1.Import dependency 2.Oil Intensity §Macro economic factors indicating impact 1.GDP [ Decreases ] 2.Inflation [ Increases ] 3.Un-employment rate [ Increases ] § §International capital market valuations of equity and debt in oil-importing countries would be revised downwards and those in oil-exporting countries upwards. §Importing countries creditworthiness [ Decrease ] leads to large current account deficits. §Upward pressure on interest rates due to tighter monetary policies for inflation §Rise in value of USD. Stronger dollar <-> greater economic damage to developing countries. §Higher subsidies pressure government budgets, increasing political and social tensions.

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IMPACT OF OIL PRICES ON GLOBAL ECONOMY : ADVANCED COUNTRIES

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TRENDS IN IMPORT DEPENDENCY OF INDIA : OIL IMPORT DEPENDENCY

Expected to rise to 94% levels by 2030 !

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SHARE OF FUTURE ENERGY SUPPLY IN INDIA : OIL INTENSITY

Share of Future Energy Supply In India (% ) Year 2006-07 2010-11 2024-25 Coal 50 53 50 Oil 32 30 25 Gas 15 14 20 Hydel 2 2 2 Nuclear 1 1 3

Source: India – Hydrocarbon Vision 2025 –Ministry of Petroleum and Natural Gas, India Upto 2011 from Technical Note on Energy, Planning Commission, Govt. of India (1998-99). Beyond this period the figures have been extrapolated.

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IMPACT OF OIL PRICES ON INDIAN ECONOMY When Oil Prices Move Up : § GDP is effected negatively. § Inflation increases. §Government spending on subsidy increases. § Exports become weak. § Foreign currency reserve deplete. § Share market crumbles. §Investment decreases.

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INDIA HYDROCARBON VISION 2025 §Focus on oil security through 100% coverage of domestic oil and gas. §Secure foreign sources sustainable long term supplies. §Meet deficit of oil by increasing Natural Gas supply and availability. §Maintain adequate levels of self-sufficiency in refining. §Establish adequate strategic storage of crude and petroleum products in different locations. §Open up the hydrocarbon market so that there is free and fair competition. §Create a policy framework for cleaner and greener fuels. §Have a fair pricing policy.

Source : India Hydrocarbon Vision 2025, Ministry of Petroleum and Natural Gas
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FUTURE TRENDS IN OIL PRICES

Price to stabilize around $90 per barrel.
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ALTERNATE ENERGY SOURCES §Solar Energy §Wind Energy §Tidal Energy §Geothermal Energy §Nuclear Energy §Hybrid and battery electric vehicles §Helioculture §Biomass

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THANK YOU

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