A Snapshot of World Oil Demand and Oil Supply Evolution

A Snapshot of World Oil Demand and Oil Supply Evolution Huei-Chu Liao and Yun Chi Chen Department of Economics, TamKang University, rubyliao@mail.tku.edu.tw Shu-Chuan Lin Department of Natural Resource and Environmental Management, National Taipei University,Chinese Petroleum Corporation JEL classification: Q41 Key words: oil price collapse, oil demand, oil supply 1. Introduction Crude oil price collapses recently due to several reasons such as less demand from sluggish world economy, the increasing shale oil production in USA, the ease of geographic tension in Middle East and the appreciation of US dollars. Many people are wondering whether the recent oil price collapse will persist for a long while as the situation in 1986 or just a temporary price adjustment similarly in the period during the end of 2008 and 2009. These authors believe that only the clarifying of the main cause of recent oil price collapse can ascertain the persistent or temporary results. Based on this belief, this paper would investigate the oil demand and supply in the past 30 years including those periods of crude oil price collapse in 1986, 2008-2009 and recent period. By revealing the detailed world oil consumption, oil production movement and the oil import and export of the top 15 countries, a whole picture will be drawn by listing every individual country s annual oil consumption (production) movement in all top 15 oil consumption (production) countries, and every individual country s annual oil net export movement in all top 15 oil net export countries in a table. The more consideration of import and net export data is because world oil price is more related to world oil trade, which is obviously decided by the main oil importers and oil net exporters. Apparently, a big oil demander having the oil supply and demand balance in his own country is hardly to affect the world oil price. It is believed that this snapshot of world oil demand and supply evolution would help us to capture the fundamental change of world oil market and evaluate whether recent oil price collapse will persist for a long while or just be a short temporary event. We review the literature in Section 2. The method is described in Section 3. Data and results will be illustrated in the Section 4. Conclusions and Remarks are in the Section 5. 2. Literature Review Since the purpose of this paper is to reveal the oil price trend in the past and to capture the possible crude oil price movement in the near future, we focus on the review of crude oil price literature. There is abund of literature in the area of crude Page 1 of 7

oil price. This paper only survey several papers which are more related to our research. One of the famous papers is written by Pindyck (1999). He found a long term stationary trend for crude oil price by using 127 yearly data. However, his conclusion is not suitable to explain the oil price movement in the short period of time, especially the recent oil price collapse. Actually, more recent papers (Regnier, 2007; Narayan and Narayan, 2007; Larsson and Nossman, 2011; Salisu and Fasanya, 2013) found oil price is very volatile in some period of time. Askari and Krichene (2008) paid more attention on the oil price fluctuation in the years of 2002 to 2006. They found oil price is very sensitive to the oil demand and supply in this period. Du, Yu and Hayes (2011) investigate the impact factors for the crude oil price volatility. They found oil stock is one of the important factors to invoke the crude oil price volatility. Following these findings, this paper would like to reveal the future oil price movement by analyze the oil demand and oil supply evolution. 3. Method Based on the survey of the literature above, we select the oil production consumption, import and export as the fundamental variables to analyze the oil demand and oil supply evolution. Our working process is explained below. 1. Collect the crude oil consumption, production, import and net export data in 2013 from EIA. 2. Rank the crude oil consumption, production, import and net export data of every country in 2013, and choose the top 15 countries for oil consumption, oil production, oil import and oil net export. 3. Trace all related data of these countries to the earliest year as much as we can. 4. Draw 4 figures of all the 60 data trends for all the data above. 5. Arrange the oil consumption trend figures in order for the top 15 oil countries in a picture to build up a snapshot of world oil consumption evolution. Similar process is repeated for oil production, oil import and oil net export to capture the snapshot of world oil production, oil import and oil export evolution. 6. Judge the future trend from the picture above by surveying more literature. 7. Consider more other short term impacts such as the possibility of geographic tension in Middle East. We believe the trend snapshot of oil consumption, oil production, oil import and oil net export for the top 15 countries would help us to judge the future movement of the world oil market due to their stable characteristics as the fundamental variables. All these 4 variables are more related to the life style, production technology and the facility, which are not easy to change in a short period of time. Moreover, some of the trend may imply a long irreversible future path. For example, some countries with more and more aged population may imply the shrink of industry and transportation sectors which would apparent reduce the oil demand. 4. Data and Results 4.1 Data Sources and Data Characteristics All data of the oil consumption, oil production, oil import and estimated petroleum net exports are collected from the website of EIA (Energy Information Page 2 of 7

Agency) of DOE (Department of Energy). We try to collect all possible data as much as we can. However, due to the data limitation, the durations for data period are different for different types of data. For example, all the oil consumption and oil production data are collected from 1980 to 2013, but Russia has less data for both the oil production and consumption, while Germany has less oil consumption data. Similar data limitations are found in the oil import and estimated petroleum net exports data. Most of the oil import country data are collected from 1984 to 2012, however, the data periods of some countries are shorter to be ranging from 1986 to 2012 (i.e. India, Taiwan, Thailand and Indonesia), while, the data period of Germany is even much shorter. Finally, we collect the estimated petroleum net exports data to replace the export data since we believe the oil net export has more impact on the world oil market. The data periods of most oil net export country are ranging from 1980 to 2013, however, the data periods of Russia and Kazakhstan are only ranging from 1992 to 2013. 4.2 Results Following above process, we draw 4 diagrams, which are the trend snap shot of world top 15 countries for oil consumption (Figure 1), oil production (Figure 2), oil import (Figure 3), and estimated petroleum net exports (Figure 4). In order to do some comparison for different countries easily, we draw all data in the same scale for the Y axis. Therefore we can find the whole data trend is scattered in the low level for those countries having much smaller barrel of oil. For example, US imports around 10 million barrel of oil per day, while other countries (e.g. those oil import countries ranking from 11 th to 15 th ) only import less than 1 million barrel of oil per day. With the advantage of same scale, it is much easier for us to capture the change of world oil demand and supply. From these 4 diagrams, we can find some valuable information since the duration of all the observed variables are more than 20 years. Most of them are even more than 30 years. Here we list several important findings, and separate them as 2 categories. One is more related to the demand change by observing the oil consumption trend and oil import trend from Figure 1 and Figure 3, the other is more related to the supply change by observing the oil production trend and estimated petroleum net exports trend from Figure 2 and Figure 4. Demand category: 1. The permanent decreasing consumption trend is found in several past important oil importing countries such as Germany, France and Japan. 2. The oil consumption of China and India is the main driver for the increasing oil demand in past few years. 3. US s oil import decreases apparently. Supply category: 1. More recent data shows significant oil production increase in Saudi Arabia and Russia. 2. Except Norway, most top oil export countries have increasing net export. 3. US s significant decreasing oil production is the main cause of its apparent decreasing oil import Page 3 of 7

Unit:Thousand barrels per day United States China Japan India Russia Brazil Saudi Arabia Germany Canada Korea, South Mexico France Iran United Kingdom Italy Figure 1: Oil Consumption Trend Snap Shot of World Top 15 Countries Unit:Thousand barrels per day Saudi Arabia United States Russia China Canada Iran United Arab Iraq Mexico Kuwait Emirates Brazil Nigeria Venezuela Qatar Norway Venez uena Figure 2: Oil Production Trend Snap Shot of World Top 15 Countries Page 4 of 7

Unit:Thousand barrels per day Figure 3: Oil Import Trend Snap Shot of World Top 15 Countries Unit:Thousand barrels per day Figure 4: Estimated Petroleum Net Exports Trend Snap Shot of World Top 15 Countries Page 5 of 7

4.3 Prediction Except those 6 demand and supply important findings, we can also find many interesting relationship between world oil demand supply balance and the movement of world oil price. Figure 5 is the monthly world oil price drawn from the EIA website. Comparing the period after the record high oil price in 2008 ( see Figure 5), we can find estimated petroleum net exports trend increasing rapidly in Saudi Arabia and Russia in Figure 4 to match the increasing import demand from China and India (i.e. Figure 1 and Figure3). However, an unexpected turning point comes out in Figure 3, which is the apparent drop of US s oil import. The increasing production of shale oil and gas production and the successful oil saving policy (e.g. car pool is more popular in many cities) significant cut the oil demand in US (Jonathan, 2014; Anjli and Neil, 2014). This unexpected oil demand drop in the whole world oil market should be the main driver in the recent world oil price collapse as we find in the final part of Figure 5. Concerning the prediction of world oil price trend in the near future, the information from Figure 1 to Figure 4 also brings us some clues. First of all, the oil import trend from China and India are still increasing which may cover the oil production increment from Saudi Arabia and Russia. However, according to the research by Yan (2014), China s oil demand will be slow down before 2020. Since Yan is very familiar with the oil market in China, his conclusion is very likely to occur in China. Thus we can expect China s oil import trend in Figure 3 will become much flatter than before. If all the other countries do not have significant change, then we can expect a slow world oil demand growth in the near future. Secondly, the supply side of world oil supply is expected to increase more than the increase of demand. Assuming that all the estimated petroleum net exports trend keep in the same level of 2013 for the top 15 countries, and US keeps slow growth of shale oil production, we find world oil supply will increase more from Figure 2 since Iraq and Iran are more likely to produce more than the production quota in 2013. According to the market report, the future oil production capacity is more than the production trend in Figure 2 for Iraq and Iran. Once the war with ISIS and the political conflict between Iran and western countries are solved, oil production of Iraq and Iran will increase more than their production in 2013. Figure 5: Monthly World Oil Price Movement (1986~2014) Source: http://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=rwtc&f=m Page 6 of 7

5. Conclusion and Remarks Crude oil price collapses recently. Although some OPEC members strongly recommend for output control, most OPEC members tend to maintain its members production quota and keep the OPEC production at the level of 30 million b/d. Considering the oil consumption, production and the other related information, the quantity provided by OPEC will very likely bring much more world oil supply than the need from the world oil market. Since oil market consumption and production can t be adjusted quickly. We believe these fundamental market demand and supply would help the world oil price to persist in a lower level for a while even though the low price strategy applied by OPEC may scare out some new investment of oil exploring behavior... References Askari, H., and Krichene, N. (2008). Oil price dynamics (2002 2006). Energy Economics, 30(5), 2134-2153. Du, X., Cindy, L. Y., and Hayes, D. J. (2011). Speculation and volatility spillover in the crude oil and agricultural commodity markets: A bayesian analysis. Energy Economics, 33(3), 497-503. Jonathan, Guthrie. Opec decision threatens US shale industry investment, The Financial Times, Nov 27, 2014 Larsson, K., and Nossman, M. (2011). Jumps and stochastic volatility in oil prices: Time series evidence. Energy Economics, 33(3), 504-514. Maslyuk, S., and Smyth, R. (2008). Unit root properties of crude oil spot and futures prices. Energy Policy, 36(7), 2591-2600. Narayan, P. K., and Narayan, S. (2007). Modelling oil price volatility. Energy Policy, 35(12), 6549-6553. Pindyck, R. S. (1999). The long-run evolution of energy prices. The Energy Journal, 1-27. Anjli, R. and Neil, H. Oil plunges as OPEC tests the mettle of US shale industry, The Financial Times, Nov 28, 2014 Regnier, E. (2007). Oil and energy price volatility. Energy Economics, 29(3), 405-427. Salisu, A. A., and Fasanya, I. O. (2013). Modelling oil price volatility with structural breaks. Energy Policy, 52, 554-562. Yan Ran (2014). Status and Prospects for China s Oil Demand and Reserve. The 8 th IEEJ/CNPC Research Meeting. Page 7 of 7