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Crude OilPresented by: Abhishek NagPresented To: Prof. Arindam BanerjeeRecent overview of crude oilOil prices fell sharply in the second half of 2014.

Four-year period of stability around $105 per barrel.

From June 2014, the global oil prices started a trend of downward shift.

From $115 per barrel it touched a low of $45 per barrel in Jan 2015.

This decline being the largest since the 2008 decline when prices fell from a whooping $145.85 per barrel to $32 per barrel.

Oil is feedstock for various sectors, including petrochemicals, paper, and aluminium, the decline in price directly impacts a wide range of processed or semi-processed inputs.

The transportation, petrochemicals, and agricultural sectors, and some manufacturing industries, would be major beneficiaries from lower prices.

West Texas Intermediate (WTI) crude oil is of very high quality and is at refining a larger portion of gasoline. Its API gravity is 39.6 degrees, which makes it a "light" crude oil, and it contains only about 0.24 percent of sulfur (making a "sweet" crude oil).

Brent Blend is actually a combination of crude oil from fifteen different oil fields located in the North Sea. It is still a "light" crude oil, but not quite as "light" as WTI, and it contains about 0.37 percent of sulfur (making it a "sweet" crude oil, but again slightly less "sweet" than WTI). Total Production*Thousand Barrels Per DaySource: www.eia.govCountry2009*2010201120122013United States9130.0859695.58910128.4711118.6912342.77Saudi Arabia10314.7110908.3511466.7111840.6811701.51Russia10049.5510293.8410410.0610594.810763.74China4067.5444362.6584346.9834372.4464459.413Canada3318.8293441.733597.3333856.444073.868United Arab Emirates2794.5522813.2443213.7663398.1943440.588Iran4178.2964243.0734213.9683517.8173192.37Iraq2399.1672402.8762628.9932986.6413057.692Mexico3000.7912978.5992959.9892936.0092907.834Kuwait2505.9432460.2932691.8182796.7882811.842Brazil2561.7132712.4732685.1542651.8942693.866Venezuela2710.2932599.2422689.2422689.2422689.242Nigeria2212.182459.4042554.4882524.1432371.513Qatar1573.2481787.8991936.3952032.6112067.299Angola1908.0291947.7561799.8871831.6431889.416Norway2352.5552134.6212007.351902.0841826.096Algeria1909.8151880.9651862.9651875.2081762.746Kazakhstan1541.5661608.6921638.3541605.8791658.275Colombia690.2767805.8898938.5432969.05491028.474Libya1790.1091789.11501.4661483.044983.6167India873.5938965.3015995.8053990.1779982.2031Oman818.8882869.8542890.8871923.7735945.1275Indonesia1053.1511041.981022.38989.255942.2928Azerbaijan1015.9451044.862993.2248931.8823880.6013United Kingdom (Offshore)1422.1451318.7371084.068922.3808827.3068World85763.0388177.8288569.5890456.5790878.1720092010201120122013Top 1060%61%63%63%65%Top 2589%89%89%90%91%Total ConsumptionCountry2009*2010201120122013United States18771.419180.1318882.0718490.2118961.13China8069.8218938.3579504.048998010303Japan4362.7944429.2364442.4464694.7564530.825Russia2888.5343081.8243352.1083395.1093515.143India3067.7813115.453280.98334503509Brazil2459.3032698.9512776.56428642998Saudi Arabia2436.1162579.7332760.91128612968.29Canada2184.182283.3532310.1212351.8772431.283Germany2434.4712466.9272392.2022389.1332403.156Korea, South2188.4872268.5182259.3832321.6222324.013Mexico2069.6132080.4382112.5562085.6022044.27Iran1958.6411811.0061781.84817901870France1868.071833.4471793.2041771.7911767.204Indonesia1341.3421441.8191559.23516001635United Kingdom1634.2291620.3161578.2311528.3071507.799Italy1544.2411544.2281493.8321370.121315.12Thailand1058.5571128.1081179.9431249.3421271.017Singapore1024.1981149.3691216.00512401264Spain1467.5171441.0061385.3191300.9281205.012Australia988.94741005.4691048.2391073.6061082.731World84971.7587857.8488799.789721.1191194.8820092010201120122013Top 10 58%58%59%59%59%Top 2075%75%76%76%76%*Thousand Barrels Per DaySource: www.eia.govProduction v/s Consumption 2009-2013Country% Gwt in ProductionUnited States35%Saudi Arabia13%Russia7%China10%Canada23%United Arab Emirates23%Iran-24%Iraq27%Mexico-3%Kuwait12%Brazil5%Venezuela-1%Nigeria7%Qatar31%Angola-1%Norway-22%Algeria-8%Kazakhstan8%Colombia49%Libya-45%India12%Oman15%Indonesia-11%Azerbaijan-13%United Kingdom (Offshore)-42%World6%Country% Gwt of ConsumptionUnited States1%China28%Japan4%Russia22%India14%Brazil22%Saudi Arabia22%Canada11%Germany-1%Korea, South6%Mexico-1%Iran-5%France-5%Indonesia22%United Kingdom-8%Italy-15%Thailand20%Singapore23%Spain-18%Australia9%World7%OPECOPEC coordinates and unifies the petroleum policies of its members.In 2014 OPEC comprised 12 members: Algeria, Angola,Ecuador, Iran,Iraq, Kuwait,Libya,Nigeria,Qatar,Saudi Arabia, theUnited Arab EmiratesandVenezuela.OPEC member countries produce about 40 percent of the world's crude oil. Equally important to global prices, OPEC's oil exports represent about 60 percent of the total petroleum traded internationally

On November 27, a big meeting was held by the Cartel, and countries, like Venezuela and Iran, proposed that the Cartel (mainly Saudi Arabia) decreases oil production in order to maintain stability in the oil prices.1Just to ensure it maintains its market share, Saudi Arabia, the world's largest oil producer, did not agree to reducing oil production and was willing to let prices plummet.2

"We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves," said OPEC Secretary-General Abdalla El-Badri.

Crude oil - Geopolitical and Economic Effect

Sources: U.S. Energy Information Administration, Thomson Reuters

Supply And DemandTechnological shift from vertical to horizontal drilling in US led to it becoming a producer from a consumer.

Major boom in shale gas production causes the production increase by 0.9 million barrel per day.

Between July and Dec 2014 alone, the projected oil demand for 2015 is downwards by 0.8 million barrel per day.

TheUSis producing record amounts of oils plenty of supply out ofOPECandRussia. But theres not enough demand from developing economies likeChinaandIndia to consume all the oil thats being supplied.

A global recession has left Asian demand weaker than expected, and governments are slashing fuel subsidies across Asia

Its not just Asia, though. Austerity measures and decreased consumption acrossEuropeare curbing oil demand throughout that continent, too

contdGlobal oil demand growth in 2014 is expected to be around 0.96 mb/d, broadly unchanged . In 2015, world oil demand is projected to rise by 1.17 mb/d slightly higherDemand expected to decline through 2016Supply shortfallsEfficiency gains Fuel switching to natural gas (cars, ships, trains) and electricity (cars)Growth in plug-in hybrid electric vehiclesGrowth in battery electric vehicles Overcapacity stymied growth in refining All markets but Asia will experience gasoline glut

Source: IEAs Medium-Term Oil Market Report Global EV Outlook: Understanding the Electric Vehicle Landscape to 2020 Middle East ContextSaudi output surged to 30-year highs in summer 2014 Scant evidence of near-term decline 50,000 bbl/d increase to 9.65 mbbl/d in September Saudi Arabia has 1.5 m 2 mbbl/d ready spare capacity to mitigate market flux

Socio-political distress in the Middle East and North Africa raising OPEC risk

Tension in OPEC Members uncomfortable with price cuts and oil glut; disunity present Saudi Arabia refusing to raise prices in response to Angolan and Libya n discounts Unconventional oil production in danger with crude slump. US O&G company profit margins down in 3rd quarter. Russian revenues will fall (will continue production expecting price rebound)

OPECis now engagedina "price war" with the US. It's relatively cheap to pump oil out of places like Saudi Arabia and Kuwait. But it's more expensive to extract oil from shale formations in places like Texas and North Dakota.So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. And the price of oil will stabilize. At least that's what OPEC members hope.

One-third of shale projects unprofitable at below $80 How does the fall in oil prices affect India?In India the fall in oil prices will help lower inflation and reduce current account deficits a major source of vulnerability for many of these countries India, which is the fourth largest consumer of oil, is a big beneficiary of falling oil prices.

India imports nearly two-thirds of crude oil requirements.

The reduced prices will not only lower the import bill but also help save foreign exchange.

And It will also enable oil marketing companies to reduce retail prices of petrol and diesel.

As per rough estimates, a $10 fall in crude could reduce the current account deficit by approximately 0.5% of GDP and the fiscal deficit by around 0.1% of GDP.

Lower oil prices have also aided government's efforts to keep inflation low and stable besides curtailing fuel subsidies.

A lower subsidy bill will help contain the country's fiscal deficit a measure of the amount the government borrows to fund its expenses at the budgeted level of 4.1% of GDP in 2014-15.

With every dollar decrease in oil prices, the government's oil import bill comes down by Rs. 4,000 crore.

Indias Requirement

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

India and Norway have discussed bilateral relationship between the two countries in the field of oil and natural gas and decided to extend cooperation in hydrocarbon exploration.India and Vietnam have stepped up cooperation in the energy sector as ONGC Videsh and PetroVietnam Exploration Production Corporation has signed an agreement to explore three oil blocks.The Government of India has planned to set up a Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) near Bina, Madhya Pradesh with an investment worth around Rs 1 trillion (US$ 15.71 billion).The Government of India gave its approval to sign a memorandum of understanding (MoU) between India and the US for cooperation in gas hydrates for a period of five years.The oil futures marketA sell-off in global oil markets amid a burst of bearish factors pushed crude oil futures to more than five-year lows during December trading. ICE Brent settled down a hefty $16.36 at $63.27/b, while Nymex WTI lost $16.52 to finish the month at an average of $59.29/b. Over the month, both benchmarks declined by a massive 21% and 22%,respectively.

Speculative bets on a rebound in oil prices rose sharply over the month, particularly in ICE Brent, as crude oil prices reached a five-year low. Investor inflows into funds that track crude oil exceeded four-year highs on speculation that prices would rebound from a five-year low. ICE Brent net length positions increased a hefty 75% to 115,571 contracts during the last week in December, according to figures from the ICE Futures Europe exchange. This is due to the combination of a 27,058 rise in long positions and 22,540 reduction in short positions.

Hedge funds and money managers also made bullish bets on a rising US crude oil market, increasing net length by almost 25% over the month. Net long US crude futures and options positions during the month increased to 199,388 lots, US Commodity Futures Trading Commission (CFTC) data show. Long speculative positions in Nymex WTI increased 5.2% to 259,613 lots, while short positons decreased by 29% to 60,225 lots. Moreover, total futures and options open interest volume in the two markets increased in December by 499,177 lots to 4.6 million contracts.The daily average traded volume during December for Nymex WTI contracts decreased slightly by 589 lots to average 641,751 contracts. ICE Brent daily traded volume also fell by 65,786 contracts to 596,517 lots. Forecast

Forecast for 20152014 Estimatehttp://www.opec.org/Thank You