Oil And Gas 102

I have used PowerPoint as a way to present the basics of Oil and Gas price fluctuations and their short and long term drivers.  The presentation includes

• Global Supply/Demand and Surplus Capacity
• Economic Growth as a driver
• Domestic Supply/Demand
• Energy Policy
• Oil Market Speculation

And much more!

(Start the presentation by clicking on the arrow in the middle of the screen.  Typically each slide has many "layers".  Use the space bar to proceed through each layer of the slide.  When the last layer of a slide is reached using the space bar will result in moving to the next slide)

Oil and Gas 102

More PowerPoint presentations from BTUGuy

Disclaimer: Content, including research, tools and securities symbols, is for educational and informational purposes and should not be intended as a recommendation or solicitation to engage in any particular securities transaction or investment strategy. You alone are responsible for evaluating which securities and strategies better suit your financial situation and goals, risk profile, etc. The projections regarding the probability of investment outcomes are hypothetical and not guaranteed for accuracy or completeness. They do not reflect actual investment outcomes and are not guarantees of future results, and do not take into consideration commissions, margin interest and other costs that will impact investment outcomes. Content may be out of date or time-sensitive, and is subject to change or removal without notice

Speculation in Oil Markets

Editor's note: The following is an excerpt from a research paper I recently completed.

Background

Oil futures markets are a relatively recent phenomenon.  The first “oil” futures contract developed was for heating oil traded on the New York Mercantile Exchange (NYMEX) beginning in 1978. The success of the contract led to the implementation of the West Texas Intermediate (WTI) crude oil futures contract in 1983 as well as a gasoline contract in late 1984.  By 1990 there were 10 active oil futures trading contracts worldwide. Prior to 1978, the “bible” for price discovery was a daily publication called “Platt’s Oilgram”.  Prices for physical oil were reported to Platt’s by the oil traders themselves.  Platt’s makes a good faith effort to verify prices by contacting parties on both sides of the transaction.  Obviously, verification takes time so Platt’s price information, although relatively quick and accurate, is not instantaneous.   

The oil futures market provides instantaneous price discovery.  Futures markets also allow industry participants to shed risk by selling product for future delivery at a guaranteed price.  This practice is known as hedging.  The futures markets allow non-commercial players (speculators) to participate in oil markets.  Speculators serve two purposes.  First they provide liquidity to the market allowing trades to be made more readily.  Second, they represent the “other side” of the transaction.  For example a crude producer may want to sell his oil into the futures market to “guarantee” a price in the future.  Obviously, for each contract there must be a seller as well as a buyer.  The futures market provides a clearing house for buyers and sellers.  A speculator may be that buyer.

Dueling Models

Has “speculation” driven prices to levels higher than the “true value of oil”?  The three part answer is as follows.

o       The Commodity Futures Trading Commission (CFTC) says no.

o       The James A. Baker III Institute for Public Policy at Rice University (JBIPP) says maybe

o       The St. Louis Fed says yes

Each of the aforementioned institutions agrees on one point – The supply/demand balance is the single largest factor in pricing of oil.

Energy Facts and Fallacies

Energy is a complex business that doesn't lend itself to sound bites.  Nearly every day, one is exposed to statements that are misleading or just plain false.  I call this B.U.L.L. (bombastic utterances of laughable lads).  Below are some of the sound bites proffered by politicians and "talking heads" followed by a detailed explanation illuminating the truth as I see it.  The statistics and figures presented come from reliable sources.  Subject matter covered is as follows:

• "Oil Exports"
• Domestic Oil Production, Imports and Reserves
• Oil Production from Federal Lands
• Energy Independence
• Quick fix for gasoline prices
• Oil Company Subsidies
• Oil Company control of retail markets
• Oil Market Speculation
• "Dirty" Canadian oil
• Keystone XL pipeline