[quote]MaximusB wrote:
Did you notice gas go up near you ?
The shit went up almost a dime a gallon here, fucking state global warming law. [/quote]
I get gas for 2.2 usd at Costco in the Bay Area.
I don’t think I’ve seen gas this cheap since I was a little boy.
[quote]Bismark wrote:
We have to remember that oil is an inelastic good, meaning price changes have little effect on the quantity we buy.[/quote]
We do, thanks.
[quote]theuofh wrote:
No the Saudi’s are running a record deficit. This is a major move on their part.
[/quote]
They are running a budget deficit of $39B, but remember this is in the context of $750B in FX reserves. They are also the low cost producer - it costs them approx $10bbl to produce oil.
They can keep oil here indefinitely.
[quote]NorCal916 wrote:
[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]
The “US” is blinking, most producers have cut 2015 budgets 30-50%. Unfortunately, most of these producers are likely to still grow overall production even at those reduced capital investment levels. It could take until 2016 for US production to decline as producers have become very efficient. Mthe key is global demand, and that just doesn’t look so good. Hard to blame that Saudis, “we”/US producers have doubled our production in the past 5 years, their production hasn’t changed much at all. Demand just hasn’t kept pace. There were various geopolitical reasons for keeping oil prices elevated the past couple of years, but there has been a fundamental supply/demand issue for a couple years now and it has finally reared it’s ugly head…
No the Saudi’s are running a record deficit. This is a major move on their part.
No doubt the Saudi’s can produce at a much lower $/bbl, the $15/bbl isn’t that far off for what it costs them to,produce the majority of their current production. Their government will have to run at a deficit at these price levels, but their cost of production is extremely low compared to the majority+ of US based production. They have been smart and saved a decent level of cash reserves to run a deficit, and unfortunately, can put us in a hurt locker.
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.
Totally agree with this - the savings for most families isn’t going to be that much. Seems most of us figured out how to manage $3.50-4.00/gal unleaded, don’t see behaviors changing in terms of miles driven. The biggest issue that no one is talking about is the coming layoffs. This industry supports a large amount of high paying jobs in the US - with the reduced capex budgets, there’s no way significant layoffs aren’t coming. I don’t think there is a huge geopolitical slant to the Saudis behavior, at the end of the day, this is a business decision for them. They can/are undercutting prices around the globe and signing long term contracts that ensure they maintain/increase their market share. Capitalism at its finest, but brutal for US producers and their employees.
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]
Canadian gas prices aren’t all that different, slightly higher than US, but nothing like $10-12/gallon. Those are UK prices though, have been that way for 10+yrs. Those folks have it rough, it was pretty tough dropping $250 US dollars for a tank of gas when I lived there a while ago…
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.
Diesel prices and jet fuel haven’t moved as significantly as unleaded and other oil derivatives (natural gas has fallen significantly as well). The issue is that service provides are slow to move prices lower - think about how many airlines gave up their damn charges for checked bags - once they got everyone to accept it, there’s no turning back. This isn’t going to be a huge stimulus for the individual, maybe corporations and the stock market, but not most of us…
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?
[/quote]
See above - no way airlines are going to pass along the savings. They are going to save for a rainy day (oil prices go back up) and/or increase dividends/share buy backs to make their shareholders happy. There’s a chance it trickles down to the consumer, but it is going to be a slow drip…
[quote]Bourne12 wrote:
[quote]NorCal916 wrote:
[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.
Totally agree with this - the savings for most families isn’t going to be that much. Seems most of us figured out how to manage $3.50-4.00/gal unleaded, don’t see behaviors changing in terms of miles driven. The biggest issue that no one is talking about is the coming layoffs. This industry supports a large amount of high paying jobs in the US - with the reduced capex budgets, there’s no way significant layoffs aren’t coming. I don’t think there is a huge geopolitical slant to the Saudis behavior, at the end of the day, this is a business decision for them. They can/are undercutting prices around the globe and signing long term contracts that ensure they maintain/increase their market share. Capitalism at its finest, but brutal for US producers and their employees.
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?
[/quote]
[/quote]
Struggle to figure out how to,quote/reply to posts, going to pull out my comments from above…
The “US” is blinking, most producers have cut 2015 budgets 30-50%. Unfortunately, most of these producers are likely to still grow overall production even at those reduced capital investment levels. It could take until 2016 for US production to decline as producers have become very efficient. Mthe key is global demand, and that just doesn’t look so good. Hard to blame that Saudis, “we”/US producers have doubled our production in the past 5 years, their production hasn’t changed much at all. Demand just hasn’t kept pace. There were various geopolitical reasons for keeping oil prices elevated the past couple of years, but there has been a fundamental supply/demand issue for a couple years now and it has finally reared it’s ugly head…
No doubt the Saudi’s can produce at a much lower $/bbl, the $15/bbl isn’t that far off for what it costs them to,produce the majority of their current production. Their government will have to run at a deficit at these price levels, but their cost of production is extremely low compared to the majority+ of US based production. They have been smart and saved a decent level of cash reserves to run a deficit, and unfortunately, can put us in a hurt locker.
Canadian gas prices aren’t all that different, slightly higher than US, but nothing like $10-12/gallon. Those are UK prices though, have been that way for 10+yrs. Those folks have it rough, it was pretty tough dropping $250 US dollars for a tank of gas when I lived there a while ago…
Diesel prices and jet fuel haven’t moved as significantly as unleaded and other oil derivatives (natural gas has fallen significantly as well). The issue is that service provides are slow to move prices lower - think about how many airlines gave up their damn charges for checked bags - once they got everyone to accept it, there’s no turning back. This isn’t going to be a huge stimulus for the individual, maybe corporations and the stock market, but not most of us…
See above - no way airlines are going to pass along the savings. They are going to save for a rainy day (oil prices go back up) and/or increase dividends/share buy backs to make their shareholders happy. There’s a chance it trickles down to the consumer, but it is going to be a slow drip…
[quote]Bourne12 wrote:
See above - no way airlines are going to pass along the savings. They are going to save for a rainy day (oil prices go back up) and/or increase dividends/share buy backs to make their shareholders happy. There’s a chance it trickles down to the consumer, but it is going to be a slow drip…
[/quote]
There are no savings.
Airlines have lost billions on their hedges. The speed and severity of this drop in prices caught everyone unaware. I would imagine most airlines are locked in to >$100 oil for years to come.
[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]
I obviously don’t know the answer, but like I said those “saving” will likely be passed on to other industries. So as bleak a picture as has been painted for producers I don’t think it’s the end of the world for the economy in the aggregate.
I’m surprised with India and China’s economic growth world wide consumption is only projected to increase 1%.
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?
[/quote]
See above - no way airlines are going to pass along the savings. They are going to save for a rainy day (oil prices go back up) and/or increase dividends/share buy backs to make their shareholders happy. There’s a chance it trickles down to the consumer, but it is going to be a slow drip…
[/quote]
Airlines all run hedge bets against the price of gas to keep costs predictable. Depending on the bets, a big swing down might actually be fucking some of them right now.
Ha ha, didn’t see that Pangloss beat me to it.
[quote]Dr. Pangloss wrote:
[quote]Bourne12 wrote:
See above - no way airlines are going to pass along the savings. They are going to save for a rainy day (oil prices go back up) and/or increase dividends/share buy backs to make their shareholders happy. There’s a chance it trickles down to the consumer, but it is going to be a slow drip…
[/quote]
There are no savings.
Airlines have lost billions on their hedges. The speed and severity of this drop in prices caught everyone unaware. I would imagine most airlines are locked in to >$100 oil for years to come.
[/quote]
I didn’t know that about the airline industry. Interesting.
What about transportation (shipping, trucking, etc) of goods. Will it affect prices?
And if it only affects company profits, won’t this help the economy through hiring/expansion/shareholder increases??
[quote]NorCal916 wrote:
[quote]Dr. Pangloss wrote:
[quote]Bourne12 wrote:
See above - no way airlines are going to pass along the savings. They are going to save for a rainy day (oil prices go back up) and/or increase dividends/share buy backs to make their shareholders happy. There’s a chance it trickles down to the consumer, but it is going to be a slow drip…
[/quote]
There are no savings.
Airlines have lost billions on their hedges. The speed and severity of this drop in prices caught everyone unaware. I would imagine most airlines are locked in to >$100 oil for years to come.
[/quote]
I didn’t know that about the airline industry. Interesting.
What about transportation (shipping, trucking, etc) of goods. Will it affect prices?
And if it only affects company profits, won’t this help the economy through hiring/expansion/shareholder increases??
[/quote]
Someone mentioned Diesel prices remaining unchanged so transportation costs have’t gone down.
I would say it could help with expansion/hiring, but not if new profits end up solely with shareholders. I think you’re going to see a lot more companies horde cash (like Apple) after surviving the recession.
[quote]usmccds423 wrote:
I obviously don’t know the answer, but like I said those “saving” will likely be passed on to other industries. So as bleak a picture as has been painted for producers I don’t think it’s the end of the world for the economy in the aggregate.
I’m surprised with India and China’s economic growth world wide consumption is only projected to increase 1%. [/quote]
I’m not sure anyone is saying it will be the end of the world for the economy; in fact, falling energy prices are a form of stimulus. It’s a huge boon to consumers. I just filled up for $1.95/gal yesterday and over the summer I was paying $4.19.
India wage growth is flat and decelerating rapidly and China is on the verge of recession. The forecast for China is %5.5 growth over the next 5 years, down from %10+ four years ago. Europe is stagnating, Africa is…Africa. LatAm is mildly positive. World GDP is forecast to be around %3.5, down from the mid to high 5s five years ago.
[quote]NorCal916 wrote:
I didn’t know that about the airline industry. Interesting.
[/quote]
There are some great stories about SWA trading oil and jet fuel during the late -90s and through 2000-2010. It’s widely known that they were essentially a energy trading firm that ran a little airline on the side. During the late -90s they hedged much of their consumption (2 billion gallons of jet fuel a year) out to 10 years or so. As oil prices rose and their competitors had to pay spot, they were able to undercut everyone else’s fares. In fact at one point, SWA was worth more than everyone other airline combined.
[quote]Dr. Pangloss wrote:
[quote]usmccds423 wrote:
I obviously don’t know the answer, but like I said those “saving” will likely be passed on to other industries. So as bleak a picture as has been painted for producers I don’t think it’s the end of the world for the economy in the aggregate.
I’m surprised with India and China’s economic growth world wide consumption is only projected to increase 1%. [/quote]
I’m not sure anyone is saying it will be the end of the world for the economy; in fact, falling energy prices are a form of stimulus. It’s a huge boon to consumers. I just filled up for $1.95/gal yesterday and over the summer I was paying $4.19.
India wage growth is flat and decelerating rapidly and China is on the verge of recession. The forecast for China is %5.5 growth over the next 5 years, down from %10+ four years ago. Europe is stagnating, Africa is…Africa. LatAm is mildly positive. World GDP is forecast to be around %3.5, down from the mid to high 5s five years ago.
[/quote]
And I wasn’t implying that anyone was implying it was the end of the world for the economy. It’s just my opinion that it isn’t the end of the world for the economy (answering a portion of the OP).
As far as India & China go that’s a fair point. I hadn’t looked into current forecasts. I was just going off the past and my memory neither of which aren’t the best indicators…
The problem is that low oil prices do not happen in a vacuum. Rather they are indicative of the economy at large. There is very weak world demand at the moment as North America is the only strong economy (debatable). And some would argue its not even strong but being propped up by the $85 billion/month the fed was printing.
-I’m still not convinced on the Saudi conspiracy. Check out Saudi production, it has actually slightly reduced over the previous year.
Although it’s expensive, fracking with improved techniques and technology could make it profitable even if oil gets to $25/barrel some analysts say. So production will increase regardless of what OPEC does. But new well permits are sliding. The WSJ reported as of Dec the gas savings amounted to a $75 billion tax cut. Also takes pressure off of inflation.
[quote]NorCal916 wrote:
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:
Economics
National Security[/quote]
Low prices are good for consumers and since all people and enterprises must consume it is generally a good thing. Low prices means supply is either increased relative to demand or that demand is reduced relative to supply. These low prices most likely have to do with the unwinding of the shale oil bubble that started ca. 2008 during the ramp up of quantitative easing (US dollar counterfeiting by Federal Reserve).
From a national security standpoint it does not really matter much. Military forces must consume fuel and lowered fuel costs means lower burden to tax payers. The real security threat comes from the fact that these dollars used to invest in oil exploration which may not have been necessary in light of recent events (malinvestment).
[quote]Brett620 wrote:
Although it’s expensive, fracking with improved techniques and technology could make it profitable even if oil gets to $25/barrel some analysts say. So production will increase regardless of what OPEC does. [/quote]
I think this is right, at least in the short to medium term. I’ve read conflicting reports as to actual recoverable reserves in fracking, however. It may get pretty cheap to pull out at least until it runs out; the question is how long do the reserves last as tech gets better.
[quote]Dr. Pangloss wrote:
[quote]usmccds423 wrote:
I obviously don’t know the answer, but like I said those “saving” will likely be passed on to other industries. So as bleak a picture as has been painted for producers I don’t think it’s the end of the world for the economy in the aggregate.
I’m surprised with India and China’s economic growth world wide consumption is only projected to increase 1%. [/quote]
I’m not sure anyone is saying it will be the end of the world for the economy; in fact, falling energy prices are a form of stimulus. It’s a huge boon to consumers. I just filled up for $1.95/gal yesterday and over the summer I was paying $4.19.
India wage growth is flat and decelerating rapidly and China is on the verge of recession. The forecast for China is %5.5 growth over the next 5 years, down from %10+ four years ago. Europe is stagnating, Africa is…Africa. LatAm is mildly positive. World GDP is forecast to be around %3.5, down from the mid to high 5s five years ago.
[/quote]
Doc, can you see this leading to a downward economic spiral on the other hand?
Heavy losses in the energy sector ----> Selling from winning sectors to cover losses ---->More selling to cover more losses etc.
[quote]on edge wrote:
Doc, can you see this leading to a downward economic spiral on the other hand?
[/quote]
No. Energy only makes up ~9% of the S&P. There will be heavy (and have been) heavy losses within the energy sector, but certainly no systemic contagion effect.
Edit: my comment above refers to both the stock market as well as the broader economy. Oil is an input in nearly every good. The benefit to consumers will far outweigh the damage to specific energy companies.
That’s not how professionals trade (although I’m not saying it hasn’t been done). You get out of your losers and keep your winners. Selling winners and keeping losers is amateur-hour; if I caught any of my guys doing that we’d have a very frank discussion about their future in the business.