"Crisis in the Oil Market: Remembrances of the Past, Policy - - PowerPoint PPT Presentation
"Crisis in the Oil Market: Remembrances of the Past, Policy Responses for the Future" EPRINC WEBINAR 5/12/2020 Michael Lynch comments FIGHTING THE LAST WAR OR LEARNING FROM HISTORY? The Maginot Line was designed to work against the
EPRINC WEBINAR 5/12/2020 Michael Lynch comments
The Maginot Line was designed to work against the WWI German battle plan. King Solomon Supposedly wrote, “There is nothing new under the sun” about 3000 years ago.
u
DOES NOT A SPRING MAKE
u
TENDENCY TO MISTAKE SHORT-TERM TRANSIENTS FOR LONG-TERM TRENDS
u 1973/4 u 1979 u 1998 u 2004/14
$0 $20 $40 $60 $80 $100 $120 $140 1861 1871 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 2017$/BBL
SOLOW
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In 1973, during the oil crisis, MIT economist Robert Solow argued that a 1931 paper proved that mineral prices had to rise exponentially. This contradicted reality, as the graph above shows, and his colleague, Morris Adelman (my mentor) correctly noted that it was the reduction in supply from the Gulf countries which sent prices up.
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BOOMING PRODUCTION AND/OR INVESTMENT
u NORTH SEA u OIL SANDS u ORINOCO u G-T-L
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ALL PROFITABLE AT $20!
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In nearly every oil price boom and bust, there are those Who expect the sudden price move to persist. Expectations That the price would remain at $12 for years were not uncommon.
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DESPARATE TIMES REQUIRE DESPARATE MEASURES
u PRICE WAR PRECEDED PANDEMIC
u WHAT WAS THE CAUSE?
u PROTECTING MARKET SHARE FROM COMPETITORS (I.E. SHALE) u TRYING TO FORCE OTHERS (SAUDIS) TO CARRY A BIGGER BURDEN u (AND AVOIDING THAT ON THE PART OF THE SAUDIS)
u
WHAT WILL COMPLIANCE LOOK LIKE WHEN INVENTORIES TOP OUT AND BEGIN TO DROP?
200 400 600 800 1000 1200 1400 Jan-94 JUL Jan-95 JUL Jan-96 JUL Jan-97 JUL Jan-98 JUL Jan-99 JUL Jan-00 TB/D
SAUDI IRAN IRAQ UAE QATAR VENEZUELA NIGERIA INDONESIA ALGERIA
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Source: Energy Intelligence Group
Besides the perceived future threat to market share, Venezuela had announced it would no longer obey quotas and was ramping up