The price of oil/the cost of energy

Dans

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So the oil price shows no sign of arresting the steep decline it has been in for months now. I heard someone interviewed today (either on 5live or Today on Radio 4) saying that OPEC had no intention of reducing production and that he could see $30 or even $20 a barrel as possible.

As a result of this decline, Lufthansa have said that they are factoring in far lower costs for this year than had previously been the case. (Perhaps a good time to buy shares in industries which use a lot of oil?). So we could see cheaper airfares THIS year (Said Lufthansa).

Contrast that with the Offgem chief who was interviewed last week on Today and when asked whether consumers would surely see a fall in energy costs this year suggested that this fall might come next year at the earliest as energy is bought well in advance of it being sold. Sounded like a cop out to me - I am sure by Jan 2016 everyone will have forgotten about the massive fall in the price of oil that took place in late 2014. Protecting the big energy firms perhaps?

How quickly do prices fall at the pumps though? Here in DE, I have noticed that diesel is already significantly cheaper than it was last year - I was quite shocked actually (I have a fuel card so don't really pay that close attention to prices). Has this happened in UK?

We should all be doing well out of this, but that said I found this graphic interesting:

_79755553_oil_breakeven_prices2_464gr.gif


UK doesn't figure there, but I read that North Sea Oil becomes unprofitable at these low prices. Luckily the UK is as reliant on oil as the countries listed above, but imagine how Scotland's numbers would be looking now had they got independence!
 
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Prices never fall as fast as they rise, but definitely seeing the difference at the pump here in the US. What will be interesting is to see what happens with airline, food, etc prices. Things that all jumped up in recent years with the cost of fuel being one of the main reasons given. Have not seen my grocery bill go down yet.
 
I started to write a thread about this very topic earlier today actually (putting the question about partial/total renationalisation), although mine came on the back of a conversation on the BBC's Wake Up To Money. They were talking about an excess of natural gas in the UK sector in such negative terms, and almost bemoaning the progress made in energy efficiency. A contributor they had on predicted that consumer prices will if anything increase, and this due to poor investment in infrastructure when the market was more favourable.
 
Oil isn't the only commodity dropping. Copper is at its lowest since 09, gold is all over the place.

The drop in oil will benefit most people aside from those in the renewable energy industry. Secondly the US have found such a large volume of shale gas that people believe they will become self sufficient in the future.

On a side note: some oil traders have got large tankers just to hold their crude oil in the middle of the sea and wait for oil prices to rise again.
 
Oil will bottom sometime soon imo, probably in the low 40s, then begin to gradually rise back into the 60-80 range later this year.
 
You can see the logic behind the lag in cheaper prices at the pump; any business that has oil as a core part of its function will utilise the futures market to smooth their costs over time. Having said that, it's fair to say that the lag seems to be longer when the price is going down than when the price rises!
 
JustAFan said:
Tinfoil hat time. Do you think there might be some market manipulation going on right now, trying to lower the price to target someone like say....Putin?
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I have heard or read this suggestion before - I just find it hard to believe that all those countries on the graph who suffer so much from such a decline in the price would agree to it (surely they all influence OPEC?)
 
Uzz said:
Oil isn't the only commodity dropping. Copper is at its lowest since 09, gold is all over the place.

The drop in oil will benefit most people aside from those in the renewable energy industry. Secondly the US have found such a large volume of shale gas that people believe they will become self sufficient in the future.

On a side note: some oil traders have got large tankers just to hold their crude oil in the middle of the sea and wait for oil prices to rise again.
Click to expand...
From what I read, whole strategy behind Saudi Arabia pumping excess oil is to make it economically un-viable for US to rely on shale gas.
 
JustAFan said:
Tinfoil hat time. Do you think there might be some market manipulation going on right now, trying to lower the price to target someone like say....Putin?
Click to expand...

I think that's a by product of OPEC wanting to have a go at US shale producers. It costs far less for the gulf states to get a barrell out of the ground than it does Shale producers in North America as well as Russian oil.
 
JustAFan said:
Tinfoil hat time. Do you think there might be some market manipulation going on right now, trying to lower the price to target someone like say....Putin?
Click to expand...

Ofcourse there is market manipulation going on since likes of Russia and Venezula want OPEC to cut down their extraction rate but they are persisting for one reason or another.
 
Well, I learned something today - I didn't realise that the US was not a member of OPEC!

Kinell, daft bastard.
 
JustAFan said:
Tinfoil hat time. Do you think there might be some market manipulation going on right now, trying to lower the price to target someone like say....Putin?
Click to expand...
My belief is that Saudi Arabia is using low prices to drive oil businesses in the US and its own neighbours (i.e. Iran) out of business. Oil prices will go back up after enough damage is done and Saudi Arabia will win out in terms of money and geopolitics.

The likes of Russia and Venezuela are collateral damage.

The US isn't hitting back that hard because it's a game of chicken and hurting Russia is a small benefit to them. If Russia hadn't annexed Crimea, we might have seen more diplomatic efforts by the US.

I think oil prices will go back up to "normal" levels by the end of this year and US shale oil production will drop to less threatening (to OPEC) levels in exchange. Putin and Maduro will be unhappy, but nothing changes there.
 
crappycraperson said:
From what I read, whole strategy behind Saudi Arabia pumping excess oil is to make it economically un-viable for US to rely on shale gas.
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I agree-but the fact is shale reserves in the US are a lot larger than initially thought. In the long term, the biggest consumers will significantly reduce their spending on oil. This will be reflected in the price. There'll be all this supply with a lot less demand.
 
Uzz said:
I agree-but the fact is shale reserves in the US are a lot larger than initially thought. In the long term, the biggest consumers will significantly reduce their spending on oil. This will be reflected in the price. There'll be all this supply with a lot less demand.
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Any drop in demand by US will be balanced by the ever increasing one from developing countries like India.
 
Raoul said:
I think that's a by product of OPEC wanting to have a go at US shale producers. It costs far less for the gulf states to get a barrell out of the ground than it does Shale producers in North America as well as Russian oil.
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They've already squeezed a few of the higher cost shale producers out and if you look at the rig count, it has been consistently falling, reflecting reduced activity. It's also hitting the broader American economy at the margins- eg US Steel laid off a bunch of workers the other week citing reduced demand for pipelines.

The low oil price is fecking Russia, but that seems to be a by-product of the whole thing.

Uzz said:
I agree-but the fact is shale reserves in the US are a lot larger than initially thought. In the long term, the biggest consumers will significantly reduce their spending on oil. This will be reflected in the price. There'll be all this supply with a lot less demand.
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Over time, but from what I understand, the wells get exhausted pretty quickly, so not sure the shale boom will last as long as some think. China's shale reserves are largely untapped. Be interesting to see how much they have.
 
crappycraperson said:
Any drop in demand by US will be balanced by the ever increasing one from developing countries like India.
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They've got shitloads of their own gas though.

As an aside, lot of investors seem to be piling in now. This was from ETF Securities this afternoon.

A Four-Year High in Oil ETP Inflows

Download the complete report (.pdf)

Highlights

  • Weekly oil ETP inflows highest in four years - US$76.9mn.
  • Natural gas ETPs saw US$7.5mn of inflows last week.
  • ETFS Physical Silver (PHAG) received highest inflows in nine weeks.
  • ETFS Aluminium (ALUM) sees outflows of US$41.3mn, the most in five weeks.
Click here for Euro returns table
 
Jippy said:
They've got shitloads of their own gas though.

As an aside, lot of investors seem to be piling in now. This was from ETF Securities this afternoon.

A Four-Year High in Oil ETP Inflows

Download the complete report (.pdf)

Highlights

  • Weekly oil ETP inflows highest in four years - US$76.9mn.
  • Natural gas ETPs saw US$7.5mn of inflows last week.
  • ETFS Physical Silver (PHAG) received highest inflows in nine weeks.
  • ETFS Aluminium (ALUM) sees outflows of US$41.3mn, the most in five weeks.
Click here for Euro returns table
Click to expand...

I heard that the US becoming self sufficient was a big factor in the tumbling price of oil. Turns out fracking is environmentally catastrophic but a great way to keep all those over-sized gas guzzlers Americans drive relatively cheap to run.

Re the OP and falling costs not yet hitting the consumer, isn't that all because every industry with a big exposure to oil price fluctuations hedges against this by buying at a price which is fixed for several years in advance?
 
As another side effect and proof that some people never learn, heard that SUV and other gas guzzlers vehicles are seeing an increase in sales as the gas prices fall. Almost like the buyers all forgot about high gas prices or the concept that gas prices will probably rise again. Idiots, get what they deserve.
 
Jippy said:
They've already squeezed a few of the higher cost shale producers out and if you look at the rig count, it has been consistently falling, reflecting reduced activity. It's also hitting the broader American economy at the margins- eg US Steel laid off a bunch of workers the other week citing reduced demand for pipelines.

The low oil price is fecking Russia, but that seems to be a by-product of the whole thing.
Click to expand...

I don't think the effect on the US economy will be much in the end. It will obviously affect energy companies and those who work for them, but on the other end it will help the average US consumer, as fuel costs are now about half what they were last year, which results in basically a tax cut for consumers and increased spending in consumer discretionary items.
 
Pogue Mahone said:
I heard that the US becoming self sufficient was a big factor in the tumbling price of oil. Turns out fracking is environmentally catastrophic but a great way to keep all those over-sized gas guzzlers Americans drive relatively cheap to run.

Re the OP and falling costs not yet hitting the consumer, isn't that all because every industry with a big exposure to oil price fluctuations hedges against this by buying at a price which is fixed for several years in advance?
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I was actually talking about India in the bolded bit about it having loads of gas. The oil price hedges can be disastrous- nearly bankrupted Air Mauritius when they put a hedge in place when the oil price was at its record high of around $156 a barrel. Most of the big gold mining firms have ditched hedges because they were losing as often as they saved money- the price direction is just too volatile to call.

Raoul said:
I don't think the effect on the US economy will be much in the end. It will obviously affect energy companies and those who work for them, but on the other end it will help the average US consumer, as fuel costs are now about half what they were last year, which results in basically a tax cut for consumers and increased spending in consumer discretionary items.
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Agreed on that, was thinking more about certain sectors I guess. Might feck the likes of Tesla though.
 
crappycraperson said:
From what I read, whole strategy behind Saudi Arabia pumping excess oil is to make it economically un-viable for US to rely on shale gas.
Click to expand...

x42bn6 said:
My belief is that Saudi Arabia is using low prices to drive oil businesses in the US and its own neighbours (i.e. Iran) out of business. Oil prices will go back up after enough damage is done and Saudi Arabia will win out in terms of money and geopolitics.
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From being directly associated with the Saudi O&G industry, their plot indeed seems to quickly ramp up production. The've spent (and continue to spend) a shitload on O&G infrastructure since around 2007 or so. The subplot, though, is that they're also diversifying quickly, with minerals and metals, building purpose built industrial cities for these.
 
adexkola said:
Basing national budgets on the market price of commodities is simply retarded.
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I guess if 70%+ of your national revenues come from oil you haven't got much choice.
 
adexkola said:
Basing national budgets on the market price of commodities is simply retarded.
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~50% of the Russian budget comes from energy exports if I recall. They don't really have much option, as it would be silly to turn down free money that comes from the ground.
 
It would be crazy to turn down the money, but revenue from commodity products should be treated as surplus funds, not critical funds. Recent economic history is full of countries whose monocentric economies were fecked by the volatile commodity markets.
 
How's Norway coping with all of this? Always thought their economy was extremely oil dependent. They're fecking loaded too. So awash with cash that the average working week for most Noggies is just four and a half days and the average length of the working day is a fraction of what us non-oil rich proles have to put in.
 
Pogue Mahone said:
How's Norway coping with all of this? Always thought their economy was extremely oil dependent. They're fecking loaded too. So awash with cash that the average working week for most Noggies is just four and a half days and the average length of the working day is a fraction of what us non-oil rich proles have to put in.
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Mixed picture for the noggies- the krone has been tanking, which is good for exporters obviously but oil about a fifth of its economy. They have that giant slush fund though so will be fine. Amazing how the likes of the Gulf states, Singapore and Norway have actually set aside money in these sovereign wealth funds over the years and invested it astutely. The UK on the other hand...
 
adexkola said:
Pissed it up the wall?

Asking, I don't know what the UK did with the North Sea oil funds...
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Yeah basically. The amount we got from the North Sea in tax revenue was much smaller, mind. Just jars a bit when you see the Dubai and Qatari sovereign wealth funds buying good strategic assets as diversifiers- eg the latter owns half of Canary Wharf.
 
From Goldman Sachs today- they expect Saudis to ride it out down to $40. Dunno if Goldman's oil predictions are as bad as their gold ones, which are legendarily bad.

Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market.

The bank reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York.

West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter.
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EDIT: link http://www.bloomberg.com/news/2015-...0-oil-as-forecast-for-opec-cut-abandoned.html
 
Jippy said:
Mixed picture for the noggies- the krone has been tanking, which is good for exporters obviously but oil about a fifth of its economy. They have that giant slush fund though so will be fine. Amazing how the likes of the Gulf states, Singapore and Norway have actually set aside money in these sovereign wealth funds over the years and invested it astutely. The UK on the other hand...
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It was never a big enough part of UK GDP to build a significant sovereign wealth fund, when in conjunction with our short termist politics.

Ireland is more comparable....
 
The US are loving this, I don't see how it can be seen as an effective strategy against them. It might hurt the oil companies and the states that rely on oil income but they will always be propped up by the government if needed.

They are such a huge consumer of oil, the lower costs have a great effect of stimulating all industry and giving your average Joe a good few quid extra to spend. On top of this, world investors are taking flight from all other major economies to pretty much the only safe haven that exists right now, the US economy is taking off. Then you've got Europe who are just heading into deflation and uncertainty.

Saudi's plan can only be local politics I guess, might as well make use of their cash reserves to hurt their rivals that can't sustain these prices.
 
Raoul said:
That sounds about right. The Saudis are also losing money with Oil as low as it is and won't have an appetite to keep it in the 30s or 40s for too long.
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They have the currency reserves to stick it for a while. They are loving the economic terrorism. Opec's influence really is declining though. Stiĺl think shale could be a short-term phenomena.
 
Jippy said:
They have the currency reserves to stick it for a while. They are loving the economic terrorism. Opec's influence really is declining though. Stiĺl think shale could be a short-term phenomena.
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Definitely, especially as there is probably a lot of shale in places and countries who ordinarily import their oil from elsewhere. Places like China, eastern Europe etc. In the long run, the availability of oil in odd places will lessen the power of the likes of OPEC and Russia.
 
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