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March 17, 2016 | Global Equity
Technology’s Impact on Oil Prices

Portfolio Manager

Simon Fennell, partner, is a portfolio manager for William Blair’s International Growth, International Small Cap Growth, and International Leaders strategies. He joined William Blair in 2011 as a technology, media, and telecommunications research analyst focusing on idea generation and strategy more broadly. Before joining William Blair, Simon was a managing director in the equities division at Goldman Sachs in London and Boston, responsible for institutional equity research coverage for European and international stocks. Previously, Simon was in the corporate finance group at Lehman Brothers in London and Hong Kong, working in the M&A and debt capital markets groups. Simon received an M.A. from the University of Edinburgh and an M.B.A. from Cornell University’s Samuel Curtis Johnson Graduate School of Management.

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Around this time last year, we were observing the reaction of the Middle East, most notably Saudi Arabia, to shale. The big issue was exactly what OPEC would endorse in terms of production. We seem to be past that now, and the old lines about the Stone Age ending when they ran out of stones did not apply here. Today, we believe Saudi Arabia is being fairly intelligent in managing its asset base.

From our perspective, the most important and enduring issue in energy is the impact of technology. We believe energy may have moved from being an extractive industry to a technology-driven industry. To illustrate, the charts below shows when fracking technology came in to play, and the immediate price reaction. As well costs have declined, so too have oil prices.

How much is that going to change moving forward into 2016? Is $30 per barrel the right number? We just don’t know. What we do know, from a technology perspective, is that Moore’s Law leads to lower marginal costs supporting low prices. As an extractive industry, oil has a naturally increasing marginal cost curve. These two forces are in clear conflict right now, but with WTI at $38 per barrel (as of 3/29/16), it appears that technology is winning the argument.

Portfolio Manager

Simon Fennell, partner, is a portfolio manager for William Blair’s International Growth, International Small Cap Growth, and International Leaders strategies. He joined William Blair in 2011 as a technology, media, and telecommunications research analyst focusing on idea generation and strategy more broadly. Before joining William Blair, Simon was a managing director in the equities division at Goldman Sachs in London and Boston, responsible for institutional equity research coverage for European and international stocks. Previously, Simon was in the corporate finance group at Lehman Brothers in London and Hong Kong, working in the M&A and debt capital markets groups. Simon received an M.A. from the University of Edinburgh and an M.B.A. from Cornell University’s Samuel Curtis Johnson Graduate School of Management.

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