Oil Prices: Cycle, Bubble, or Fundamental Shift

1
Oil Prices Cycle, Bubble, or Fundamental Shift

• C.E. Bishop
• Director, Economics
• Marathon Oil Corp.

2
Oil Market Perceptions

• Demand in the last decade has outpaced
  expectations as Asian economies grow
• Non-OPEC production has also failed to keep pace
• OPEC production and capacity has failed to meet
  expectations

3
Oil Prices and Open Interest in Crude Oil
Futures and Options
Source Nymex
4
Reality Check

• World Oil Demand is near long run expectations
• Non OPEC production exceeded expectations
• OPEC Capacity increases have not been necessary

5
EIA World Oil Demand Forecastsmillion barrels
per day
Source US Dept. of Energy, Energy Information
Administration
6
Chinas Increasing Share of World Oil Consumption
Presents Logistical and Geopolitical Challenges
7
World Crude Oil Refinery Distillationthousand b/d
8
EIA World Oil Production Outlookmillion barrels
per day
Source US Dept. of Energy, Energy Information
Administration
9
Actual 2005 Production vs 1995 EIA
Outlookmillion barrels per day
10
Oil reserves-to-production (R/P) ratios
Source British Petroleum plc
11
Persian Gulf Imports as a Percent of Total Oil
Demand
Europe 19
North America 12
Asia 46
U.S. Dept. of Energy, Energy Information
Administration International Energy Outlook 2004
12
Three Key Issues

• Access
• Access
• Access

13
Conclusions

• Consumers make the right decisions, whatever the
  price signals.
• Access will determine the potential for Non-OPEC
  production, and the ultimate response to the
  current price level.
• Prices will moderate if the industry is permitted
  to do what it does best find, produce and
  deliver affordable energy.