Petroleum Equipment Institute. A Bend in the Road. Brian Beaulieu CEO. First in Forecasts Since 1948

Transcription

1 Petroleum Equipment Institute A Bend in the Road Brian Beaulieu CEO

2 217 Forecast Results If you heard ITR around two years ago 2 Duration Accuracy US GDP % US Ind. Prod % Europe Ind. Prod % Canada Ind. Prod % China Ind. Prod % Retail Sales % Housing % Employment % ITR Economics provides the best economic intelligence to reduce risk and drive practical and profitable business decisions.

3 19 US Economy Stalls in 219 and Into 22 US Real Gross Domestic Product GDP - 3MMA Before Data Revision Sep '15 Forecast GDP - 3MMA '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21 June '18 Forecast 14 3MMA Data Trend Source: BEA

4 Oil Bils Barrels.8 Back to a Normal Relationship US Consumption of Crude Oil & Petroleum Products to Real Gross Domestic Product GDP Trils C212$ Oil Consumption - Raw Data GDP - 3MMA Data Trends Sources: EIA, BEA 4

5 US IP 12 Manage the Business Cycles to Maximize Profits US Industrial Production to Gross Domestic Product GDP % % -2.9% -5.2% GDP US IP -15.5% '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Year-over-Year, Quarter-to-Quarter (3/12) Sources: FRB, BEA

6 Economic Growth = Increased Oil Consumption Consumption 1 US Consumption of Crude Oil and Petroleum Products to US Gross Domestic Product GDP Consumption There is a direct link between economic growth and growth in consumption The ascending rates-of-change are a positive signal for secular growth potential GDP -1 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 ' /12 Rates-of-Change Sources: EIA, BEA 6

7 Real GDP Growth Rate 1% Lower Taxes May Provide a Temporary Boost US Top Marginal Individual Tax Rates to Real GDP Growth Rate 1% 8% 6% 4% 2% % -2% 9% 8% 7% 6% 5% 4% 3% 2% 1% Top Marginal Tax Rate -4% % Real GDP Growth Rate - 3/12 Top Marginal Tax Rate Tax Rate - Percent, GDP - 3/12 Sources: Tax Foundation, BEA, 7

8 7% Freed Up Money Likely Not going to Capex US Corporate Tax Rate and Gross Business Investment 7% 8 Corporate Tax Rate % 6% Gross Business Investment (% of GDP) 6% 5% Linear (Gross Business Investment (% of GDP)) 5% 4% 4% 3% Atlanta Federal Reserve Survey 3% 2% 2% 1% 1% % '6 '64 '68 '72 '76 '8 '84 '88 '92 '96 ' '4 '8 '12 '16 % Percent Sources: Tax Policy Center, FRED 8

9 The Economy and the Midterms 9

10 Global Issues

11 $ Value Tariffs: There Will Be Winners and Losers Proposed 5 4 Proposed Auto Imports, 35 Proposed Chinese Imports, 267 Fair trade Specialization is a good thing Competition is a good thing Economics is not a zero sum game Potential disruption to supply chains Price increases Retaliation Actual 1% Tariff Sep 24th Proposed Russia, 3.2 Chinese Imports Round 2, Proposed Japan, Proposed India, % Tariff Jan 1, % Chinese Imports Round 1, 5 Aluminum, 17.4 Solar Panels, 8.5 Steel, 29 Washing Machines, 1.8 US Tariffs China Round 2, 6 China Round 1, 52.4 Reciprocal Tariffs Propose d Turkey, 1.8 Europe, 3.2 Mexico, 2.9 Canada, 12.8

12 Brands That Have or Will Be Increasing Prices Due to Tariffs TOYOTA I can't just go to the shareholders and say, 'You're WHIRLPOOL just going to have to accept my profit's going to be COCA-COLA $4 million less. It doesn't work that way WINNEBAGO MILLER COORS - Gavin Hattersley, CEO MillerCoors SAMUEL ADAMS CAMPBELL SOUP LG ELECTRONICS GENERAL MOTORS KLEENEX & HUGGIES POLARIS INDUSTRIES NEWELL BRANDS (Crock-pot, Rubbermaid, Yankee Candle, & Sharpie) Source: Business Insider, These popular brands say Trump's tariffs will force them to raise prices 12

13 Trade is of Increasing Importance to Some Countries World IP 15 World Industrial Production Index to G7 Leading Indicator Indicator /12 1/ World IP Indicator '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 Rates-of-Change Sources: CPB Netherlands Bureau For Economic Policy Analysis, OECD -6 13

14 Back to the USA Financial Markets

15 1 Perilous Heights? S&P5 Stock Prices Index Raw 12MMA Data Trends Source: Wall Street Journal 15

16 Analysis of the CAPE ratio indicates that the 5-year forward return for the S&P 5 from current levels averages about 2.5% January 19 September 218 Source: Robert Shiller Yale University Analysis prepared by : Baird Family Wealth Group October

17 16 Protectionism & Future US Bond Yields ? '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Source: FRB Yield on 1 Year Treasury Note

18 Leading Indicators and General Economic Trends

19 More Rise Ahead; More Prosperity Ahead US Crude Oil Production Millions of Barrels per Day Source: EIA 3 19

20 US Crude Oil Inventories Are Low Million Barrels 55 US Crude Oil Inventories US Commercial Crude Oil Inventories 25 Jun 214 Jan 215 Aug 215 Mar 216 Oct 216 May 217 Dec 217 Jul 218 Feb 219 Sep 219 Million Barrels Source: EIA 2

21 Mexico Is Not Participating in the NA Trend R-O-C 1 3/12 12/12 Mexico Oil & Gas Mining Production MMA MMA 12MMA -8.1% -9.3% ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 ' = 1 Source: Mexico National Institute of Statistics and Geography 6 21

22 Keeping Canada on the Rise ROC Canada Oil and Gas Extraction MMA 2 3/12 12/12 8.% 6.6% $ MM A 12MMA 1-4 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of 27 Chained Canadian Dollars Source: Statistics Canada 75 22

23 Increasing Saudi Production Suggests Price Decline Ahead Oil Prices 9 US Crude Oil Futures Prices to Saudi Arabia Oil Production Index S.A. Oil Production Oil Prices S.A. Oil Production 2-9 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21 ' /12 Rates-of-Change Sources: WSJ, IMF 23

24 Increasing Demand-Pull in this Sector R-O-C 1 3/12 12/12 US Industrial Sector Total Energy Consumption 3.% 2.2% MMT MMT 12MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Quadrillion btu Source: EIA 27 24

25 Decelerating Demand-Pull R-O-C 6 3/12 US Transportation Sector Total Energy Consumption MMT /12 1.%.8% MMT 12MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Quadrillion btu Source: EIA 25 25

26 Accelerating Demand Pull for Now R-O-C 2 3/12 US Residential Sector Total Energy Consumption MMT /12 8.2% 5.2% MMT 12MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Quadrillion btu Source: EIA 15 26

27 R-O-C 3/12 1 Nearing the Apex for the Commercial Sector US Commercial Sector Total Energy Consumption MMT /12 3.9% 2.3% MMT 12MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Quadrillion btu Source: EIA 15 27

28 We Think a Business Cycle Shift in Momentum is Coming 1 3/12 US Crude Oil Futures Prices / % 3.8% / / ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22-6 Rates-of-Change Source: WSJ 28

29 3MMA 15 US Production, Demand, Inventories & Politics US Crude Oil Futures Prices 12MMA MMA 3MMA ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 Data Trends, US $ Source: WSJ 29

30 Higher Oil Prices Aren t Evident in the Rig Count Worldwide 8 Worldwide Rotary Rig Count to North America Rotary Rig Count North America % 13.6% Worldwide -4-6 North America ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 12/12 Rates-of-Change Source: Baker Hughes -6 3

31 Oil 15 Natural Gas is Not Following Suit US Crude Oil Futures Prices to US Natural Gas Future Prices Gas Oil Natural Gas '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Raw Data Source: WSJ 31

32 Indications of a Tendency to Rise US Natural Gas Futures Commodity Prices 15 3/ / /12-1.5% -7.5% -5 12/12-1 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22-1 Rates-of-Change Source: WSJ 32

33 Rates-of-Change Suggest Modest Rise 3MMA 12 12MMA US Natural Gas Futures 12MMA MMA ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 Data Trends in US $ Source: WSJ 33

34 Millennials and EVs Could Impact This Trend Eventually 3.5 US Total Vehicle Miles Driven 3. Miles Trillions of Miles Source: The Center for Transportation Analysis (CTA) at the Oak Ridge National Laboratory 34

35 Smaller Market but with More Rise Passengers bils Passenger-km 6 Mexico Annual Road Traffic Freight bils ton-km Passengers Freight Raw Data Source: OECD 35

36 Fueling Down the Highway to Your Door ATA Truck Tonnage Index MMA Annual Data Trend Source: American Trucking Associations 36

37 US IP 1 Searching for a Recession US Search Interest for "Recession" on Google to US Industrial Production Index Search Interest / / US IP 12/12 US IP Forecast Search Interest 3/12 (post-log transformation) '6 '8 '1 '12 '14 '16 '18 '2 '22 ' Rates-of-Change (Search Interest has a 16 month lead time) Sources: Google, FRB

38 General Rise with No Great Recession Cliff for Now R-O-C 5 US Single Unit Housing Starts As seen in MMT /12 12/12 6.6% 1.2% MMT 12MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Millions of Units Source: Census Bureau 38

39 Fully Participate in this Trend US Housing Price Index $ ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Raw Data Raw Data Source: Federal Housing Finance Agency 1 39

40 Leading Indicator System as a Powerful Tool US IP, JP Morgan 15 US Industrial Production Index to Leading Indicators PMI, Wilshire, G US IP - 12/12-2 US IP Forecast -1 G7 Indicator - 1/12 PMI - 1/12-4 Wilshire Market Cap - 3/12-15 JP Morgan Indicator - 3/12-6 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 Rates-of-Change Sources: FRB, OECD, ISM, Yahoo Finance, IHS Markit

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42 ITR Management Objectives Preparing for the Future 1. Keep some dry powder ready for late Develop strategies and tactics for dealing with inflation 3. Automate 4. Develop your company rates-of-change; timing is everything 5. Track the leading indicators 42

43 The Long View Prosperity in the Age of Decline

44 Issues Government Will and Won t Tackle $3, $2,625 $2,25 $1,875 $1,5 $1,125 $75 $375 $ Current Tax Receipts Consumption Expenditures Current Transfer Payments Interest Payments $3, $2,625 $2,25 $1,875 $1,5 $1,125 $75 $375 $ Billions of Dollars Source: BEA 44

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