The Oil Market Price Action

By Shay Gvily for the

Technion Israel Financial Workshop

Nov 2010

Upstream
searching and recovering oil from the ground
Offshore On Land

natural & artificial lift

Oil Sands

Upstream - On Land
Pumpjack (or horsehead pump)
use when the natural pressure isnt sufficient to recover the crude from the ground. The pumpjack creates a vacuum that lifts the crude to the surface.

Upstream - Off Shore Drilling

The offshore drilling refers to discovery, development and

recovery of crude and natural gas from underwater sources.

This type of upstream method is

very complicated and includes high cost of searching, building infrastructure and massive cost of production. One of the most popular region of offshore drilling is the Golf of Mexico (GOM) in south US. In that region you can find hundreds of rigs that produce more than 50% of all US crude and gas.

Canadian Oil Sands

Oil sands are a mix of

sand, clay and bitumen. Economical oil sands contain 10% to 12% of bitumen that after a simple ,but expensive, process can be separated from the sand and refined to oil products.
The mining process requires

digging two tons of sand to produce one barrel of oil.

Only a few years ago refining

crude products from oil sand become economical. Only after this, did oil sands be considered as part of the world's official oil reserves.

Oil Supply Curve

Mb/d 87.60 75.03

60.26

35.9

8.24 $15 $40 $50 $60 $70 $75 $80 $85 Price

Demand
The demand for oil is defined as the overall petroleum product

supplied by refineries, pipelines and terminals. Last estimates for global demand are 86.9 mb/d.

Downstream Refining Crude Oil

Refining is a process that takes crude oil and turns it into gasoline and many other useful petroleum products. during the refining process the crude breaks down into its various components, which then are selectively reconfigured into new products. One barrel is 42 gallons or 159 liter of crude. From each barrel the refinery produce 44 gallons of products.

WTI $147 Jul 16th LIBOR spike , credit concern & big hedge fund liquidation

Sep 7 Federal take over of Fannie Mae & Freddie Mac

Sep 14th Merrill Lynch sold to BOA WTI $110 Mar 16th Bear Stearns gets Fed funding and sold to JPMorgan Chase Sep 17th The Fed lends $85B to AIG Nov 12 $700B Troubled Asset Relief Program (TARP) Sep 15th Lehman Brotherss bankruptcy

May 6 DJIA up to 8500 WTI $73

Mar 10 DJIA had fallen to 6440 points And the beginning of bear market rally

Trading Range $35 - $55

WTI Weekly 10 Years

Monthly Return on the S&P Goldman Sachs Commodity Index

The beginning of the financial meltdown 10 7.5

5
2.5 0 -2.5 -5

-7.5
-10 -12.5 -15 -17.5

-20
http://us.ishares.com/product_info/fund/holdings/GSG.htm

Monthly Volume On ICE

Product GasOil Brent WTI

Sep 2010 243,493 421,151 252,668

Sep 2009 157,823 313.989 192,350

% Change 54.3 34.1 31.4

WTI Forward Curve

Commitments of Traders

Financial Meltdown

Freight rate Arabian Gulf to USGC

WTI Timespread