Understanding Oil Prices: A Guide to What Drives the Price of Oil in Today's Markets

188 Pages·2011·3.2 MB·English

by  Salvatore Carollo

Understanding Oil Prices
ForothertitlesintheWileyFinanceseries
pleaseseewww.wiley.com/finance
Understanding Oil Prices
A Guide to What Drives the Price of Oil
in Today’s Markets
Salvatore Carollo
A John Wiley & Sons, Ltd., Publication
Thiseditionfirstpublished2012
©2012SalvatoreCarollo
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LibraryofCongressCataloging-in-PublicationData
Carollo,Salvatore.
Understandingoilprices:aguidetowhatdrivesthepriceofoilintoday’smarkets/Salvatore
Carollo.
p.cm.—(Thewileyfinanceseries)
Includesbibliographicalreferencesandindex.
ISBN978-1-119-96272-4(hardback)
1.Petroleumproducts—Prices. 2.Petroleumindustryandtrade—History. I.Title.
HD9560.4.C37 2012
338.2(cid:2)3282—dc23
2011039266
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
ISBN978-1-119-96272-4(hardback)ISBN978-1-119-96289-2(ebk)
ISBN978-1-119-96290-8(ebk) ISBN978-1-119-96291-5(ebk)
Setin11/13ptTimesbyAptaraInc.,NewDelhi,India
PrintedinGreatBritainbyTJInternationalLtd,Padstow,Cornwall,UK
A SofiaeRiccardo
Parmid’averperlungheesperienzeosservato
taleesserelacondizioneumana
intornoallecoseintellettuali,
chequantoaltrimenoneintendeenesa,
tantopiu` risolutamentevogliadiscorrerne;
eche,all’incontro,lamoltitudinedellecoseconosciuteedintese
rendapiu` lentoeirresolutoalsentenziarecircaqualchenovita`.
Itseemstome,afterlongexperience
inobservingthehumancondition
asregardsintellectualmatters,
thatsomepersons,thelesstheyunderstandandknow,
allthemoreforciblywishtoholdforth;
andthat,whenweencountersomethingnew,
themyriadthingsknownandunderstood
makeanyjudgementregardingitslowerandlessconclusive.
GalileoGalilei
Contents
Foreword xiii
Preface xv
QuickReferenceGuide xix
ListofFigures xxiii
ListofTables xxvii
ListofBoxes xxix
1 TheWorldCrudeOilParadoxes 1
2 TheMarketEventsfrom2008to2011 7
WorldEnergyPolicy 8
TheFinancialCrisisandtheOilMarket 10
FundamentalsorFinancialSpeculation? 17
Demand/SupplyofGasolineandGasoil 21
WTI–BrentDifferential 24
3 EvolutionofthePriceofCrudeOilfromthe1960s
upto1999 29
1960–1980:TheOilMonopolyandtheTwoCrises
inthe1970s 30
The1980s:TheGradualDisappearanceofOPEC 33
ThePriceWar 35
x Contents
1985–2000:FromtheIntroductionofBrentasan
InternationalBenchmarktotheCleanAirAct 37
TheSuicideofOPEC 40
TheStartoftheFreeMarket 41
TheConsequencesoftheEnvironmentalTurnaround 44
4 ChangesintheMarketforAutomotiveFuels 45
EvolutionofEnvironmentalDemand 45
GasolineanditsComponents 50
Reforming 51
Cracking 52
Alkylation 53
Isomerization 53
RefinersWalktheTightrope 53
TheFiscalPolicyoftheIndustrializedCountries
RegardingFuels 55
5 WorldOilFlow 63
TransformationsintheDownstream 66
WorldSupplyStructure 70
6 TheClassicalModeloftheInternationalOilMarket 73
7 TheShort-termModeloftheInternational
OilMarket 81
8 TheBrentMarket 89
TheSaleandPurchaseContract 90
TheForwardMarketforBrent(15dayBrentContract) 94
TheIPEBrentMarket 100
TheDivorceBetweenOilPriceandOil 102
9 PrincipalUsesoftheForwardandFuturesMarkets 105
TaxSpinning 105
Benchmarking 105
HedgingthePriceRisks 106
SpeculationsonOperationalFlexibilitiesatLoading 114
MarketStructure:ContangoandBackwardation 117
ProceduresattheLoadingTerminals 119
Contents xi
10 ProblemsoftheBrentForwardMarket 123
11 TheEuropeanRefineryCrisis 131
12 Conclusions:WeareOurselvesOPEC 155
Bibliography 163
Index 165
Foreword
Thisbookwasconceivedafteracriticalre-readingofthelecturesIgave
attheEniCorporateUniversity(ECU)fortheMasterMEDEAandfor
theAnnualSeminaronoilmarketing.
Itisthereforetheresultnotonlyofmyelaborationsandmarketmodels
developed over the years to interpret the international oil market, but
alsoofthediscussionsinthelecturehallwiththestudentsoftheMaster
MEDEAandwiththerepresentativesofthoseproducingcountrieswho
havetakenpartinthevariouseditionsoftheAnnualSeminar.
Mythanksaredueabovealltothesepersons.
I also wish to thank Prof. Enzo Di Giulio, president of ECU, who
desired to be present in these lectures and encouraged me to put the
contentofmypresentationsinbookform.
Finally,IoweparticularthankstoDrCaterinaMarmoratowho,apart
fromhelpingmewithnotableprofessionalcommitmentinthedelivery
of the lectures for the Master course, dedicated a good part of her free
time for several months in preparing the technical annexes and in the
taskofediting.