Oil prices crash

[K. A. Pital]

Russia's economy predictably collapsing as no relevant , self-sustaining industrial potential outside the oil and gas industry has been built up during the last decade.

[Kane Starkiller]

I wonder what would happen if the oil drops to $35 and remains there on average for the next 10-15 years like it did in 1986-1998 period. Would Russia be any more prepared? It doesn't look like it now.

[K. A. Pital]

Russia is never 'more prepared' and never will be 'more prepared' because its elites are a bunch of incompetent thieving morons. Kind of like your typical Third World corrupt government, except with more population, more oil and more stealing wherever and whenever possible. That's the real result of the 1990s and 2000s in Russia - a pathetic deindustrialized wreck almost entirely dependent on oil, gas, metal and grain exports, barely making any high added value products up the production chain (notably weapons, heh).

If oil drops to $35 Russia won't default like before, since state debt is very low and currency reserves are high, but the economy will undergo a line of bankruptcies of worthless petrodollar-leeching 'companies' designed to steal money and not make products (most notably the 'nanotechnology' and 'Yo-automobile' oligarch scams).

Let's just wait and see.

[Vympel]

but the economy will undergo a line of bankruptcies of worthless petrodollar-leeching 'companies' designed to steal money and not make products (most notably the 'nanotechnology' and 'Yo-automobile' oligarch scams).

Let's just wait and see.

Nanotechnology? Eh? That sounds really hilarious, can you elaborate on these oligarchy scams (both nanotechnology and 'Yo-automobile')?

Also, I was wondering, in your opinion, is there anything to the thesis of this book?

http://www.nybooks.com/articles/archive ... le-russia/

I note this review of the book is written by notorious idiot and neoconservative ideologue, Anne Applebaum (wife of the Polish nutbar ex-FM who recently publically disgraced himself by making up a meeting whereby the Russians offered to partition Ukraine with Poland) - but I don't wish that to color the author/book itself.

On the other hand, the Economist - which has always been 'anti-Russian', gives a pretty balanced review

[madd0ct0r]

US oil now below $50 a barrell:

http://www.bbc.co.uk/news/business-30687669

The US oil price has fallen below the symbolic threshold of $50 a barrel for the first time since April 2009.

The price of Brent crude also fell on Monday, dipping more than 6% to trade at below $53 a barrel.

The price of both Brent crude and US oil, known as West Texas Intermediate crude, have now lost more than half of their value since mid-2014.

Investors are worried that combination of a global supply glut and weak demand could cause prices to tumble further.

US oil production has soared recently, as fracking - or the process of extracting oil from shale rock by injecting fluids into the ground - has revolutionised oil production in the country, transforming US states such as North Dakota and Pennsylvania in the process.

However, the increase in production has come just as economies across the world - from Europe to China - have slowed their once voracious demand for oil.

This, combined with Opec's decision to continue extracting oil at its current pace, has left many investors worried.

That has in turn led shares of many of the world's leading energy firms, from BP to Exxon Mobil, to decline sharply over the past few months.

[Fingolfin_Noldor]

I read somewhere that the oil industry was responsible for a good bit of employment over the last few years, and now they are considering laying off people.

So good or bad, the fall in oil prices will definitely affect job creation in the United States.

[Raw Shark]

The nearest major intersection to my place has gas stations on 3/4 of its corners, who have been steadily edging each other down in prices by a penny or two / day for the past two months, to the point at which they are all below $2.00/gallon for regular unleaded post-New Year. As a conservationist I'm really worried (unless this lasts long enough to make fracking unattractive to the energy industry, in which case win-win), but as a professional driver who pays for his own very large quantities of gas I'm a little giddy, not gonna lie.

[Welf]

The nearest major intersection to my place has gas stations on 3/4 of its corners, who have been steadily edging each other down in prices by a penny or two / day for the past two months, to the point at which they are all below $2.00/gallon for regular unleaded post-New Year. As a conservationist I'm really worried (unless this lasts long enough to make fracking unattractive to the energy industry, in which case win-win), but as a professional driver who pays for his own very large quantities of gas I'm a little giddy, not gonna lie.

I don't own a car, mostly travel by airplane, my heating is electric, and my main customer is in the renewable industries. This sucks.

[Mr Bean]

The nearest major intersection to my place has gas stations on 3/4 of its corners, who have been steadily edging each other down in prices by a penny or two / day for the past two months, to the point at which they are all below $2.00/gallon for regular unleaded post-New Year. As a conservationist I'm really worried (unless this lasts long enough to make fracking unattractive to the energy industry, in which case win-win), but as a professional driver who pays for his own very large quantities of gas I'm a little giddy, not gonna lie.

We broke 1.69$ today locally with some parts of Ohio at the 1.62$ a galleon mark. For once Costco is not 0.08cents cheaper than everyone else.

If it breaks 1.50$ I not exactly sure what I'll do... Something something, can't believe I'm filling up for 18$

[Borgholio]

Getting 50+ mpg in my Prius is suddenly less impressive than it once was...

[Simon_Jester]

I very much doubt the current low prices are going to last for more than a few years; one thing or another will blow them back up.

[Borgholio]

Oh yeah you're probably right. My wife was looking at buying one...so hopefully this lasts long enough for Toyota to start offering deals.

[The Duchess of Zeon]

Having to pay half as much for petrol is having to pay half as much for petrol. If a Prius meets your needs in terms of transportation space and functionality, not buying one just because petrol is temporarily cheaper makes no real sense... Though by all means, find a dealership with a lot clogged full of them, take advantage of the shortsidedness of others, and hold them over the barrel for the best deal you can get.

[Patroklos]

There used to be a calculator that let you look up the years it would take to get back the increased cost of a Prius over a similar sized conventional car based on gas prices. I can't find it now but it would be curious to see what that is at $2.00 a gallon.

[Borgholio]

I think it was 8 years at $4 per gallon last I checked...

[Fingolfin_Noldor]

I very much doubt the current low prices are going to last for more than a few years; one thing or another will blow them back up.

I very much doubt it'd last beyond half a year.

There are a number of countries who need the oil money, and even if Saudi Arabia is using the price as a weapon, they themselves rely on oil money a fair bit more than most Gulf States.

[Mr Bean]

I very much doubt the current low prices are going to last for more than a few years; one thing or another will blow them back up.

I very much doubt it'd last beyond half a year.

There are a number of countries who need the oil money, and even if Saudi Arabia is using the price as a weapon, they themselves rely on oil money a fair bit more than most Gulf States.

They have enough reserves on hand, raw cash reserves to weather this even at 30$ a barrel for six years.

[Fingolfin_Noldor]

I very much doubt the current low prices are going to last for more than a few years; one thing or another will blow them back up.

I very much doubt it'd last beyond half a year.

There are a number of countries who need the oil money, and even if Saudi Arabia is using the price as a weapon, they themselves rely on oil money a fair bit more than most Gulf States.

They have enough reserves on hand, raw cash reserves to weather this even at 30$ a barrel for six years.

ARe you so certain? This article came up before the oil crash.

http://www.reuters.com/article/2014/09/ ... 7K20140924

Saudi could see budget deficit next year, risks draining reserves -IMF
Wed, Sep 24 2014
* Big infrastructure projects pushing up spending
* Foreign aid has become significant cost post-Arab Spring
* Government deposits at SAMA could halve by 2019
* Says Saudi officials broadly agree with projections
* But little room for fiscal reforms at present
By Martin Dokoupil

DUBAI, Sept 24 (Reuters) - Saudi Arabia's state finances could fall into the red next year and the country could start running down its huge foreign reserves if it does not rein in the growth of government spending, the International Monetary Fund said.
The IMF has been urging the world's top oil exporter to moderate its rapid spending growth for years - warnings which have been publicly dismissed by Saudi officials as alarmist.
But an IMF report released this week, following annual consultations with the government, painted the most ominous picture yet of looming financial pressures on the kingdom.
The government has launched huge and costly infrastructure projects, while falling oil prices threaten to shrink state revenues. Meanwhile, Saudi Arabia is spending heavily on aid to other Arab countries in order to maintain geopolitical stability in the region.
The wealthy kingdom could easily handle any one of those pressures, but the IMF report suggested that even Saudi Arabia's oil wealth might not be enough to cope with all of them at once.
The government may post a budget deficit of 1.4 percent of gross domestic product in 2015 instead of the 4.0 percent surplus which the IMF forecast as recently as April, the report said.
Previously, the IMF had predicted Saudi Arabia would fall into deficit only in 2018. Its latest report said the fiscal shortfall was likely to widen to as much as 7.4 percent of GDP in 2019. Riyadh last posted a budget deficit in 2009, when oil prices briefly plunged because of the global financial crisis.
"The fiscal consolidation that (IMF) staff had expected to take place in 2013 did not materialise, and it is important that the government now moves ahead and implements fiscal adjustment," the IMF said.
"An adjustment that reduces the non-oil fiscal deficit by about 3 percent of non-oil GDP a year during 2014-19 relative to the 2013 budget outcome would ensure that government deposits remain sufficient to manage a large drop in oil prices."

SPENDING

State spending has soared over the last few years as the government has spent more on welfare to ensure social peace in the wake of the Arab Spring uprisings. Since 2010, annual spending has risen 52 percent to 994.7 billion riyals ($265.2 billion) in 2013.
The government is now embarking on infrastructure projects that will boost spending further. In 2014-2018, capital expenditure is projected to rise above 16 percent of GDP from 11 percent in 2012 because of railway construction and other projects in big cities, while housing loan disbursements are likely to reach up to 25 billion riyals a year, the IMF estimated.
This could erode the reserves which the government has built up at the central bank, the Saudi Arabian Monetary Agency (SAMA), during the past several years of high oil prices, the report warned.
"Government deposits at SAMA are projected to drop by about 55 percent between 2013 and 2019 and in 2019 would be sufficient to cover six and a half months of spending," the IMF said. Its report implied that the deposits would sink by roughly 896.5 billion riyals by 2019 from 1.6 trillion riyals in 2013.
The central bank usually invests government deposits in foreign assets such as U.S. Treasuries because of the country's currency peg to the dollar. So if Riyadh wants to draw on its deposits, this is likely to involve selling foreign securities.
SAMA's net foreign assets are projected to rise to $768.5 billion in 2014 from $716.7 billion last year, the IMF said.
Because of rising state spending, the oil price which the government needs to balance its budget has risen to $89 a barrel in 2013 from $78 in 2012, the IMF said. But oil prices have been moving adversely for Saudi Arabia in the last few months and the IMF thinks - contrary to the public forecasts of Saudi officials - that the downtrend may continue.
The report predicted the country would sell its crude oil for $101.6 per barrel in 2015 but only $91.8 in 2019.
Meanwhile, Saudi Arabia's foreign aid commitments have become a significant cost. It pledged $22.7 billion in financial assistance between January 2011 and April 2014 and disbursed $10.9 billion of that amount, mostly to Egypt, the report showed. There have been other pledges since then; in August, King Abdullah granted the Lebanese army $1 billion to help it battle militants.
The IMF expects a budget surplus of 2.5 percent of GDP in 2014 but some economists think the aid commitments could push the government into the red as soon as this year.
"It is in particular the financial aid that is going to push the budget into deficit this year," said Fahad Alturki, head of research at Jadwa Investment in Riyadh.

DEFICIT

Running deficits would not be disastrous for the government; economists believe that in addition to using its reserves, it could easily borrow money from the markets, as most other governments around the world do. State debt fell to a mere 2.7 percent of GDP in 2013, one of the lowest levels in the world.
However, the IMF recommended that Saudi authorities reduce the public wage bill by identifying public sector jobs that could be abolished when they became vacant.
"In addition, with capital spending projects making up a large part of fiscal spending, a careful prioritisation of these projects would help identify any that could be delayed or cancelled, and a review of project processes could yield cost savings," it said.

On the revenue side, Riyadh should consider imposing a tax on high-end property or vacant land, increasing fees and charges for government services, and raising ultra-low energy prices, the report said. The OPEC member has developed few sources of budget income beyond crude oil exports.
During the consultations, Saudi authorities broadly agreed with the IMF's fiscal projections, but saw limited scope for fiscal consolidation at present, the IMF said.
"The authorities also saw little scope to raise additional revenues at present, although over the medium term when alternate modes of transportation become available, increases in energy prices could be considered," it said.

Not only that, I just saw an article on WSJ that many US based oil companies are heavily in debt and are just pumping because they have no choice, but general sentiment is that something may give very soon. Article ain't free: http://www.wsj.com/articles/deep-debt-k ... 1420594436

[Mr Bean]

Here's the key point

DUBAI, Sept 24 (Reuters) - Saudi Arabia's state finances could fall into the red next year and the country could start running down its huge foreign reserves if it does not rein in the growth of government spending, the International Monetary Fund said.

Yes there budget can go into the red and will be in the red but if the Saudi government stopped all tax collection tomorrow they can completely finance the country off of monetary reserves for two years. And since they won't stop collecting taxes just collect less money.

Not to mention they can simply let prices rebound at will.


*Edit from NYT

Saudi-based investment firm Jadwa Investment said the deficit will be financed comfortably using the Saudi Arabian Monetary Agency's huge stock of net foreign assets, which totaled $736 billion at the end of November. The 2015 budget even includes a slight increase in overall spending, which will be up 0.6 percent from the previous year.

Yes they do have half a trillion plus dollars sitting around in investments.

[Fingolfin_Noldor]

Here's the key point

DUBAI, Sept 24 (Reuters) - Saudi Arabia's state finances could fall into the red next year and the country could start running down its huge foreign reserves if it does not rein in the growth of government spending, the International Monetary Fund said.

Yes there budget can go into the red and will be in the red but if the Saudi government stopped all tax collection tomorrow they can completely finance the country off of monetary reserves for two years. And since they won't stop collecting taxes just collect less money.

Not to mention they can simply let prices rebound at will.


*Edit from NYT

Saudi-based investment firm Jadwa Investment said the deficit will be financed comfortably using the Saudi Arabian Monetary Agency's huge stock of net foreign assets, which totaled $736 billion at the end of November. The 2015 budget even includes a slight increase in overall spending, which will be up 0.6 percent from the previous year.

Yes they do have half a trillion plus dollars sitting around in investments.

All that is true, but I am highly sceptical about your claim that they can sustain this nonsense for 6 years running. The article you linked also points out the elephant in the room: Youth unemployment. The Saudi government has been using money to bribe the populace into not revolting during the Arab Spring, and it risks having similar problems.

[Kane Starkiller]

But is this oil price drop more due to oversupply by Saudi Arabia or general lack of demand? Iron ore has also lost 50% of its price in the 2014 and that can't really be attributed to Saudi Arabia. It has more to do with slowing down of China and continued stagnation of EU. In fact Russia had a post Soviet record in oil production in 2014 so Saudi Arabia is not really alone in not cutting output.

[Simon_Jester]

Having to pay half as much for petrol is having to pay half as much for petrol. If a Prius meets your needs in terms of transportation space and functionality, not buying one just because petrol is temporarily cheaper makes no real sense... Though by all means, find a dealership with a lot clogged full of them, take advantage of the shortsidedness of others, and hold them over the barrel for the best deal you can get.

Well, the problem is that the Prius is more expensive than a variety of other cars that are similar for functional purposes.

If I were looking to buy a car that I would use intensely for one year and then never use again, assuming current gas prices hold... I might put a hundred thousand miles on that car in a year of heavy driving, roughly. And the Prius means I need about two thousand gallons of gas instead of four thousand, which means saving about 5000 dollars at current gasoline prices.

If I can find a Prius that doesn't cost 5000 dollars more than a conventional car of equivalent utility and spaciousness, I come out ahead, probably.

[Note that this involves me driving about 275 miles a day on average every day including holidays; when I said driving intensively I wasn't kidding]

On the other hand, as we're agreeing on, gas prices probably won't hold over the expected lifetime of cars purchased today, so it's a moot point. If you keep driving the car for a hundred thousand miles over eight years, then you'll save money on a few hundred gallons of gasoline this year... and the bulk of it later when prices are higher. At which point the savings might well creep up toward eight or ten thousand dollars.

[mr friendly guy]

But is this oil price drop more due to oversupply by Saudi Arabia or general lack of demand? Iron ore has also lost 50% of its price in the 2014 and that can't really be attributed to Saudi Arabia. It has more to do with slowing down of China and continued stagnation of EU. In fact Russia had a post Soviet record in oil production in 2014 so Saudi Arabia is not really alone in not cutting output.

You are right in that there is a bit of both. Its like the perfect storm with increasing shale production, decreasing demand, and places where oil production was disrupted (eg Libya) coming back to production again.

I should point out, decrease iron ore price is also due to increase production as well as China taking a breather. Some small miners in Australia gambled on Chinese demand to continue to grow and now are facing problems.

[Arthur_Tuxedo]

Comparing a Prius to a compact gas car and running a break-even on fuel ignores a lot of factors. A Prius is significantly more comfortable and has more amenities than the average $17K compact gas car, has a smoother and quieter ride, is far more reliable, and has storage approaching Crossover-SUV levels when you fold the back seats down. A more apt comparison would be the Prius C, which only costs a few thousand more than the typical gasoline compact car. Having said that, it's hard to beat a gas car like the 2015 Honda Fit, which gets 33/41 MPG even though it's not a hybrid, can store an 8' surfboard or multiple bicycles, and has more rear legroom than a medium-sized sedan but still fits into small parking spaces. If automakers keep making gas cars like that, then there won't be a compelling reason to jump to alternative fuels for a long time.

[LaCroix]

Comparing a Prius to a compact gas car and running a break-even on fuel ignores a lot of factors. A Prius is significantly more comfortable and has more amenities than the average $17K compact gas car, has a smoother and quieter ride, is far more reliable, and has storage approaching Crossover-SUV levels when you fold the back seats down. A more apt comparison would be the Prius C, which only costs a few thousand more than the typical gasoline compact car. Having said that, it's hard to beat a gas car like the 2015 Honda Fit, which gets 33/41 MPG even though it's not a hybrid, can store an 8' surfboard or multiple bicycles, and has more rear legroom than a medium-sized sedan but still fits into small parking spaces. If automakers keep making gas cars like that, then there won't be a compelling reason to jump to alternative fuels for a long time.

Especially when you are doing long-distance drives. My 2002 Peugeot 307SW Diesel is doing 36 MPG according to onboard log (I'm doing 150 miles per day, in a near perfect mpg mix), and it's a fucking boat of a car, bigger than the Prius. And at 100km/h, I'm getting 47MPG, even.

And this is the ass-old version - the new 308 or 3008 is much better.