COMMODITY INCOME
Figure 5:
Oil Production (Million Tonnes per year)
Asia Pacific Africa
Middle East Europe & Eurasia
S & C America North America
1990 1995 2000 2005 2010 2011 2015 2020 2025 Oil Consumption (Million Tonnes per year)
Asia Pacific Africa
Middle East
Europe & Eurasia S & C America North America
1990 1995 2000 2005 2010 2011 2015 2020 2025 2030
1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
500 0
2030
1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
500 0
Demand for oil is undoubtedly rising, as can
be inferred from expert projections of economic activity, population growth and consumption patterns, despite gains in the efficiency of oil consumption.
Global energy consumption
is growing, especially in emerging markets. Populations continue to expand in the emerging world, which is also where energy consumption per capita is experiencing sustained growth. Income growth in developing countries is
another significant demand driver, allowing sustainable consumption at ever-increasing prices. For this reason demand is highly inelastic. Historically, income rather than price has been the key determinant of demand. The share of oil in energy consumption will fall
only slightly due to long equipment lifetimes. Total demand for oil is, however, expected to rise in absolute value from the current level of around 90.7 million barrels a day.1 Oil supply is constrained by limited reserves and “Peak Oil”2
is imminent. According to the
BP Energy Outlook 2030, proven reserves are sufficient to meet current production for just over 46 years.
Total Energy Consumption (Million Tonnes per year) Renewables Nuclear Hydroelectricity
Coal Gas
Oil 1990 1995 2000 2005 2010 2011 2015 2020 2025
Total Energy Consumption (Market Share) Renewables
Hydroelectricity Nuclear Coal
2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000
0 2030
Oil returns are volatile, but they also display a large average return. The return to risk ratio of oil is exceeded only by gold, among common benchmarks century, with
Oil trading began in the 19th
global production of only 2 million barrels per year. (It currently exceeds 2 trillion barrels per year). In 1860, people were paying $228/barrel in 2010 dollars,3
when its use was mainly for
illumination.4 Except for recent years, at any time in history
Gas Oil 1990 1995 2000 2005 2010 2011 Source: BP Energy Outlook 2030, January 2013 58 March 2013 2015 2020 2025
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2030
oil prices appeared to be more supply than demand-driven. From the earliest days, there have existed buyers willing to pay a very high price for Black Gold. However, one lesson of the financial crisis of
2008 has been that world economic prospects can have a massive impact on oil prices. The peak to trough fall in the oil price from to December 2012 exceeded 70%. The ratio between the daily volatilities of the S&P 500 (a proxy gauge of future economic activity) and the WTI Index, is rarely in favour of oil (Figure 7). Ongoing worries of macroeconomic
slowdown and uncertainties regarding the political stability of the oil producing countries – in particular the Middle East – are reasons for
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