T Nation

Price of Oil


#1

So when oil prices are too high it's bad for the local/global economy.

And when oil prices are too low it's bad for the local/global economy.

Discuss concerning:

  1. Economics

  2. National Security


#2

As far as economics goes I don’t see it as an inherently good or bad thing. People that feel the extra money saved at the pump will likely just send it in other areas of the economy. So bad for the energy industry, but good for other industries. It’s also good & bad for investors. Bad for investors that bought at $3.50/gallon good for investors now. I donno, I don’t know enough about it to say ya or nay either way.


#3

Yeah, it’s actually pretty straightforward.

Low prices are good for consumers of oil.
Low prices are bad for producers.

Low prices are bad for those who produce substitutions for oil eg: solar, wind.

Low prices will make high-cost sources of oil (shale/tar sands) unprofitable and delay further exploration.

Low prices further destabilize already unstable countries (Russia, Venezuela) which can lead to coups, civil war, and missed debt payments. To the extent that foreign countries have exposure to Russian and Venezuelan debt, it can lead to large losses at foreign banks.


#4

[quote]Dr. Pangloss wrote:
Low prices are good for consumers of oil.
Low prices are bad for producers.
[/quote]

Demand in theory should increase as price declines, which will increase revenue through quantity sold while a new equilibrium is established. It’s likely still “bad” for producers, but not necessarily.


#5

It’s awful for producers. Oil has fallen %45 in 6 months, while total world consumption of oil is expected to rise just over %1.

Russia’s budget was predicated on $107 oil, Ven and Mexico budgeted for $100 oil. Oil represents %83 of Nigeria’s exports.

The types of investment decisions made are not easily reversed. Take US auto demand for gas. People who purchased Nissan Leaf’s and Tesla’s aren’t going to trade out of them into gas engined cars.

Equilibrium will be acheived but at a much lower level and demand will not, in the near future, increase to a point where revenues can equal those under $100+ oil.


#6

I feel that this is the calm before the storm so to speak. They have not raised the gas tax is almost 20years, and what better time to do it. It will help with the initial shock, and hopefully mitigate any civil unrest. The infrastructure in this country is crumbling, and where else would they get the money from to fix it?


#7

It was reported that the current gas prices amount to a $500 million a day “stimulus” to the American economy by the savings from the recent highs. Surely this has a more positive effect then just isolated industries.


#8

[quote]usmccds423 wrote:

[quote]Dr. Pangloss wrote:
Low prices are good for consumers of oil.
Low prices are bad for producers.
[/quote]

Demand in theory should increase as price declines, which will increase revenue through quantity sold while a new equilibrium is established. It’s likely still “bad” for producers, but not necessarily. [/quote]

In this case I don’t think it increases much. How much more are you driving now vs last year?

We are talking 1% demand increase vs 50% supply drop


#9

[quote]sufiandy wrote:

[quote]usmccds423 wrote:

[quote]Dr. Pangloss wrote:
Low prices are good for consumers of oil.
Low prices are bad for producers.
[/quote]

Demand in theory should increase as price declines, which will increase revenue through quantity sold while a new equilibrium is established. It’s likely still “bad” for producers, but not necessarily. [/quote]

In this case I don’t think it increases much. How much more are you driving now vs last year?

We are talking 1% demand increase vs 50% PRICE drop[/quote]

Fixed your quote for you.

We’re awash in oil, there’s no supply drop on the horizon.


#10

[quote]NorCal916 wrote:
It was reported that the current gas prices amount to a $500 million a day “stimulus” to the American economy by the savings from the recent highs. Surely this has a more positive effect then just isolated industries. [/quote]

Did you notice gas go up near you ?

The shit went up almost a dime a gallon here, fucking state global warming law.


#11

The Saudis are pissed at American oil producers. So they have started a price war with the intention of driving smaller producers and fracking operations out of business, and bringing investment in new fracking to a halt.
The Saudis can afford this at current production levels, but other members of OPEC like Venezuela, can not and have wanted to cut production for some time to drive prices back up.
Oil will go back up. It just depends who breaks first. Will American producers begin to decline and go out of business, or will the Saudis and the rest OPEC run out of money before they bleed the fracking industry dry?


#12

[quote]Alrightmiami19c wrote:
The Saudis are pissed at American oil producers. So they have started a price war with the intention of driving smaller producers and fracking operations out of business, and bringing investment in new fracking to a halt.
The Saudis can afford this at current production levels, but other members of OPEC like Venezuela, can not and have wanted to cut production for some time to drive prices back up.
Oil will go back up. It just depends who breaks first. Will American producers begin to decline and go out of business, or will the Saudis and the rest OPEC run out of money before they bleed the fracking industry dry? [/quote]

The Saudis risk losing their market share if they drive the price too low, not in their best interest.


#13

This post was flagged by the community and is temporarily hidden.


#14

Agree with all the above. But, it’s only possible because the world economy is slowing as well, especially China. If we saw growth in Chinese GDP like we did up until 2010 then oil would still be above $100.


#15

[quote]Dr. Pangloss wrote:

[quote]sufiandy wrote:

[quote]usmccds423 wrote:

[quote]Dr. Pangloss wrote:
Low prices are good for consumers of oil.
Low prices are bad for producers.
[/quote]

Demand in theory should increase as price declines, which will increase revenue through quantity sold while a new equilibrium is established. It’s likely still “bad” for producers, but not necessarily. [/quote]

In this case I don’t think it increases much. How much more are you driving now vs last year?

We are talking 1% demand increase vs 50% PRICE drop[/quote]

Fixed your quote for you.

We’re awash in oil, there’s no supply drop on the horizon.
[/quote]

We have to remember that oil is an inelastic good, meaning price changes have little effect on the quantity we buy.


#16

Well, so far the US isn’t blinking and I pass one station every day and the price drops maybe 3x a day. The Saudis could probably still make money at $15 a barrel.


#17

[quote]beachguy498 wrote:
Well, so far the US isn’t blinking and I pass one station every day and the price drops maybe 3x a day. The Saudis could probably still make money at $15 a barrel.[/quote]

No the Saudi’s are running a record deficit. This is a major move on their part.

As to the US shale oil, I’m not quite sure that is the dynamic that is going on. The Saudi’s have historical been one of the US’s great allies, but that dynamic seems to be changing now that China is their best customer. Some have speculated that this our further collaboration with them in order to punish Russia for the Crimea situation, as they are suffering the most from it. I’ve yet to see anybody come out with a definitive analysis of this situation.

Also, the money saved per family is not much. Think about it in basic terms, depending on what car you drive, you are basically getting an extra $400-800 money not spent on gas. The Obamacare “not tax” eats this up, not to mention unaccounted for food inflation (ground beef is at like $4/lb) and wages are stagnant. It sounds good, but when you run the numbers it’s not much.

Also, the price of diesel hasn’t budged much at all, which is what would help the transport and real sectors of the economy, not consumer spending which I think is a fudged number considering the debt load of many households which functioning businesses can’t run.

I’ve seen analysis before that oil would have to be near $400 per barrel to break American economy. That’s like $10-12 a gallon for gas, which is close to what Canadians pay.


#18

[quote]MaximusB wrote:

[quote]NorCal916 wrote:
It was reported that the current gas prices amount to a $500 million a day “stimulus” to the American economy by the savings from the recent highs. Surely this has a more positive effect then just isolated industries. [/quote]

Did you notice gas go up near you ?

The shit went up almost a dime a gallon here, fucking state global warming law. [/quote]

About a .07 jump near Sac.

It’s supposed to range from .15 to freakin’ .75!

Arnie really screwed us


#19

[quote]theuofh wrote:

[quote]beachguy498 wrote:
Well, so far the US isn’t blinking and I pass one station every day and the price drops maybe 3x a day. The Saudis could probably still make money at $15 a barrel.[/quote]

No the Saudi’s are running a record deficit. This is a major move on their part.

As to the US shale oil, I’m not quite sure that is the dynamic that is going on. The Saudi’s have historical been one of the US’s great allies, but that dynamic seems to be changing now that China is their best customer. Some have speculated that this our further collaboration with them in order to punish Russia for the Crimea situation, as they are suffering the most from it. I’ve yet to see anybody come out with a definitive analysis of this situation.

Also, the money saved per family is not much. Think about it in basic terms, depending on what car you drive, you are basically getting an extra $400-800 money not spent on gas. The Obamacare “not tax” eats this up, not to mention unaccounted for food inflation (ground beef is at like $4/lb) and wages are stagnant. It sounds good, but when you run the numbers it’s not much.

Also, the price of diesel hasn’t budged much at all, which is what would help the transport and real sectors of the economy, not consumer spending which I think is a fudged number considering the debt load of many households which functioning businesses can’t run.

I’ve seen analysis before that oil would have to be near $400 per barrel to break American economy. That’s like $10-12 a gallon for gas, which is close to what Canadians pay. [/quote]

I get that. But what about the lower prices of goods due to transportation costs? Every good is transported. Transportation uses oil (a great majority of the time). Look at shipping, trucking, air freight.

And speaking of air, what about the Airline industry? I understand that energy is a HUGE industry/commodity, but how can this not be a good thing for the consumer?


#20

And what about Nat’l Security???

We were not screaming about reducing our dependence of foreign oil a few years ago?

So it looks like we are. How the hell is this bad? Russia and Chavez will be hurt… big fucking deal!