Overview:

The crude oil market is one of the most watched in the world. Short duration events can impact market prices and these price fluctuations can, in turn, move financial markets. For example, the recent sectarian problems in Iraq resulted in movements in crude prices, as the market reacted to uncertainty:

"Benchmark West Texas crude oil closed at a 10-month high of $107 on June 20. By Thursday, it had dipped to $\$ 104$ a barrel, a sixth-straight daily drop. Still, global markets remain jittery about what the future could hold should Iraq's sectarian and regional tensions worsen."

USA Today: July 6, 2014

Structural changes can also impact oil prices in the longer term.

"China's demand for oil in general, and for transportation fuels in particular, could be a key factor contributing to further increases in the prices for crude oil and refined petroleum products."

Congressional Budget Office: April 2006

Economic growth and oil prices are intricately related. For example, a recent CNN Money report states:

"Costlier energy could spell trouble for European economies still struggling to regain momentum after the region's debt crisis.

Growth in the eurozone has slowed to its weakest pace in six months, according to a June survey of purchasing managers released Monday. Companies across manufacturing and services reported higher input prices."

CNN Money: July 8, 2014

Today, there are a number of factors that are influencing oil prices. Among these are increases in demand, new production coming on line, and political rest, to name a few. Production companies planning for the future need to consider not only these factors, but other factors and constraints that might impact their future profitability. These may include:

- The significant reduction in US imports of crude oil

- Infrastructure changes

- Technology

- Uneven economic growth

- Shirting demand patterns around the world

- Political risk and uncertainty

More recently in the US, there is a growing concern in some areas that the water being used for completion of oil wells is being used at the expense of other industries and uses. In addition, there is the ongoing debate over the Keystone Pipeline.

Task:

An oil production firm that is considering its future has hired your group. While the firm utilizes the Energy Information Administration (EIA) annual forecasts (see graph below), it is increasingly worried about the factors listed above and the potential impact on future prices.

The firm has hired your group to develop an economic evaluation of oil markets.

Your task is two-fold:

1. The firm believes that the best way to determine the future is to look the recent past. To that end, your group is to develop an assessment of the factors that impacted the crude oil prices from 2000 to the present. The firm would like you to consider both West Texas Intermediate (WTI) prices and Brent prices (using constant year dollars) utilizing Energy Information Administration (EIA) data to be used. There are two parts to this analysis:

1. Analyze the overall price trends during the time period utilizing the basic ideas of supply and demand to help understand the overall prices trends.
2. Analyze the shorter-term price changes. Specifically, consider any month (or months) in which there is a $10 \%$ or more price swing in either (or both) Brent or WTI prices. What are the factors or events that contributed to the changes?

2. Develop an economic analysis to assess the impact of US crude oil production; forecast demand for OECD and non-OECD countries; political unrest in the Middle East, as well as between Russia and former Soviet states; and at least two other factors your group deems relevant to crude prices through 2040. Your analysis for this task is to consider how this would impact the 2014 EIA's AE0 price forecast.

In order to do carry out your analysis you will need to support your work by utilizing historical data, coupled with economic tools.

Requirements:

There are three requirements for this project:

1. Each group leader must submit a brief progress report for the group by midnight MST, Sunday July \(27^{\text {th. }}\). The report will be a WebEx recording and should utilize slides for clarification. The report should include an overview of the project, including a discussion of each group member's focus and their progress. The group leader should summarize and present any problems encountered. Please send an email to me inviting me to view the progress report (this is a link available through WebEx).
2. The final report should include a one-page executive summary. The report, which should be no longer than 15 written pages (excluding the executive summary, graphs and charts, and references), will provide background, analysis and findings. Each report is to be submitted to memo is to be the CEO of the client company and is to use economic analysis to address economic issues relevant to the question(s) posed. Your report should make clear why the economic issues being addressed are critical to the company's short- or long-term strategies,
   The report is due no later than midnight, Sunday August \(10^{\text {th }}\). Please submit via Canvas. Included with the memo should be an appendix that provides the data manipulations performed and a table of the data utilized (the appendix is in excess of the stipulated pages).
3. Each group will provide a ten- to 15 -minute online summary presentation of the project. This is also due August \(10^{\text {th. }}\). The online presentations should be considered an accompanying presentation of the memo to the client and should present the work from the memo - it should not include additional information. The online presentation must include all group members with each presenting the content for which they are primarily responsible. The presentation should include a slide presentation - not just an audio recording. A single WebEx presentation is required - individual pieces cannot be recorded separately and submitted and non-WebEx recordings will not be accepted. The group will be evaluated on their knowledge quality of the presentation material and each member will be evaluated on his or her individual portion of the presentation. The group leader should send an email invitation to me to view the WebEx recording.

Price: $27.49

Solution: The downloadable solution consists of 13 pages, 1449 words and 3 charts.
Deliverable: Word Document