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Oil is Plunging...Good or bad for economy? (1 Viewer)
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siffoin
Footballguy
The question is how much gasoline do you want to "lock-in" at this price?
I'm thinking the pure play would be to buy 1 Emini Unleaded Gasoline Contract. These futs contracts are monthly and they have 12 months listed. Meaning you can buy any month contract from Dec 2014-Dec 2015 right now. The Dec 2015 contract is currently going at $1.75 gallon...and 1 contract equates to 21,000 gallons. There is no delivery in Emini Futures either - so come next year... they don't drop off a truckload of gas at your doorstep. It's a margin-able contract so 1 contract is about $5k of margin.
The way these are priced for every $.01 gas move you make (or lose) $21 on the contract. So if the contract next year is trading at $3.00 you would have made $2625 per contract. Put another way that would pay for 1000 gallons of gasoline at an average of $2.625....that's with the assumption that gasoline will rise back to $3.00 in the next 12 months.
Of course no one knows the future and gas might continue to drop for the foreseeable future and until the downtrend is abated there is risk of significant loss.
chauncey
Footballguy
As the price of a barrel goes down I can understand the cost of fuel and heating oil decreasing. Maybe I am just skeptical but I don't see businesses lowering the cost of goods and services. From an economic standpoint wouldn't they just keep prices where they are and pocket the difference? That economics degree sure paid off for me 
NCCommish
Footballguy
One of the big reasons for the drop is that refineries, you know the only customers for crude, are in their maintenance cycles right now. The Saudis expect to see an increase of about 3 million bpd in the next few weeks when those refiners come back online. So between the triple dip recession in Europe, yay austerity, the issues in China( they still haven't dealt with their massive real estate bubble either) and the refineries being off line there is your price drop. If the Saudis are right it could be short lived at least at these levels.
msommer
Footballguy
OPEC just released their expectations to 2015. 282k bopd less demand in 2015 than 2014 (about 1% of total), the lowest since 2004.With production unchanged that is 1m bopd less than 2014 production. Will US production keep increasing with dropping prices?
Sand
Footballguy
It will start to level off. Those projects that have expended their capex on setup just have runtime costs and will pump. Those that haven't setup may get shut down. So the curve will be more and more stunted the longer this goes on.
Redwes25
Footballguy
Predicted oversupply for next year is over 1mm barrels per day and in the first half the amounts are even greater. Maintenance cycles are an ever year event and the fall cylcle is typically over by mid-November to ramp up distillate production for the winter. Also, oil contract that is dropping is for delivery in late December, which is being purchased for the winter ramp up of distallates.
cstu
Footballguy
Bad for certain sectors of the economy. Should see the overall benefits for the economy in the next couple of quarters.
lod01
Footballguy
Or $33 a barrel is a steal.
http://finance.yahoo.com/news/oil-breaks-50-wall-street-172215306.html
Brent futures, in free fall Monday, have already sunk below $55 per barrel, losing more than 6 percent to just below $53 per barrel. WTI futures settled at $50.04 per barrel. From a technical perspective, the next target in WTI is north of $48 per barrel, but there is a case to be made for the low $30s per barrel.
"The ultimate target is now $33. That's how it sets up on the charts and that's a pronounced double bottom," said John Kilduff of Again Capital. He said the market consolidated in December but is now set on forging new lows. WTI closed at $33.98 on Feb. 12, 2009, and it is now trading at levels last seen in April 2009.
As the charts look bearish, the fundamentals are also more bearish, with reports of more supply adding to the glut.
skol asylum
Footballguy
That cheap oil would be HUGE for our economy. It's like a tax cut that redirects spending here in the states right? (Well except for states side oil producers but they had their gravy train for a while.)
I know most will disagree but i think this would be a perfect time to enact a small bump to gas taxes and direct those funds to our crumbling infrastructure.
I know most will disagree but i think this would be a perfect time to enact a small bump to gas taxes and direct those funds to our crumbling infrastructure.
Sand
Footballguy
St. Louis Bob
Footballguy
Baloney Sandwich
Footballguy
I would be okay with a gasoline tax that fluctuates with the prices at the pump. Increase it when the prices are low but keep it at current levels when it is higher.
Josie Maran
Footballguy
skol asylum
Footballguy
Pretty sure $30/barrel translated to about $1.00/gallon back in the day. So I'd guess $1.40 today.
shady inc
Footballguy
![[icon]](/data/avatars/m/5/5167.jpg?1660313464){kind=avatar}
Sand
Footballguy
If it lasts some of the higher leveraged players will certainly have issues. If that happens it will be a shopping spree for the big boys.Read some article about how oil prices getting this low will trigger debt issues and a stock market crash
msommer
Footballguy
Cash is KingIf it lasts some of the higher leveraged players will certainly have issues. If that happens it will be a shopping spree for the big boys.Read some article about how oil prices getting this low will trigger debt issues and a stock market crash
chauncey
Footballguy
Low oil prices are great for the poor and middle class. Saving $20-$80/mo at the pump and another $50 on their oil bill over the next 3 months can be a big deal.
If the price stays low into the spring #### could start to hit the fan on a macro level. Many states depend on tax revenue from the oil & gas industry, if this gets hit hard states will be scrambling, and eventually may lead to raising taxes elsewhere to balance the budget. Also the loss of tens of thousands of high paying jobs would have a negative impact that could drag the economy down.
Smaller oil companies are already cutting back. I heard yesterday that one company is laying down rigs, cutting company men rates in half (down to $1500/day, boohoo), and cutting contracts across the board by 15%. Today I heard a larger company stated in this morning's meeting they are increasing their budget for 2015 and looking to buy up smaller companies along the way. This is just for one small patch in the Permian basin.
Most people on the ground here think things will stabilize by spring. $60-$80 barrel would be a nice sweet spot that provides cheap prices at the pump while allowing the industry to thrive.
If the price stays low into the spring #### could start to hit the fan on a macro level. Many states depend on tax revenue from the oil & gas industry, if this gets hit hard states will be scrambling, and eventually may lead to raising taxes elsewhere to balance the budget. Also the loss of tens of thousands of high paying jobs would have a negative impact that could drag the economy down.
Smaller oil companies are already cutting back. I heard yesterday that one company is laying down rigs, cutting company men rates in half (down to $1500/day, boohoo), and cutting contracts across the board by 15%. Today I heard a larger company stated in this morning's meeting they are increasing their budget for 2015 and looking to buy up smaller companies along the way. This is just for one small patch in the Permian basin.
Most people on the ground here think things will stabilize by spring. $60-$80 barrel would be a nice sweet spot that provides cheap prices at the pump while allowing the industry to thrive.
Buttonhook
Footballguy
I've read that our banks are some of the "high leveraged players." Some are anticipating that oil companies will start defaulting on their loans and the Saudis, for one, are banking on it.If it lasts some of the higher leveraged players will certainly have issues. If that happens it will be a shopping spree for the big boys.Read some article about how oil prices getting this low will trigger debt issues and a stock market crash
tommyGunZ
Footballguy
Texas and the Dakotas will get crushed, but it's a net benefit for virtually every other state though, right?
Sand
Footballguy
I see companies like LINE having issues, for sure. I think they are in pre-default mode as it is. I haven't heard anything about the exposure banks have being catastrophic. Nor have the markets drubbed the banking sector. So I'd say that's a bit premature. The markets are pretty good at pricing in risk premiums.I've read that our banks are some of the "high leveraged players." Some are anticipating that oil companies will start defaulting on their loans and the Saudis, for one, are banking on it.If it lasts some of the higher leveraged players will certainly have issues. If that happens it will be a shopping spree for the big boys.Read some article about how oil prices getting this low will trigger debt issues and a stock market crash
FreeBaGeL
Footballguy
Can we just remember this the next time that airlines or shipping companies complain about rising gas prices? Jet fuel has fallen in price even more than the gas we use in our cars yet the cost of plane tickets has RISEN by 3% since this time last year. I haven't noticed shipping costs being any cheaper either.
Scammers will probably double dip and raise ticket prices again when fuel prices go back up, citing the rising cost in fuel even though their prices were never adjusted for the cheaper fuel prices in the first place.
Scammers will probably double dip and raise ticket prices again when fuel prices go back up, citing the rising cost in fuel even though their prices were never adjusted for the cheaper fuel prices in the first place.
cstu
Footballguy
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msommer
Footballguy
FYP.
It's getting tiresome to have to explain the same thing over and over again.
Saudi production is stable. US production keeps on growing. Supply met and exceeded the balance point. price plummets.
Saudis don't want to keep losing market share so they keep their production stable.
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msommer
Footballguy
The US, like it or not, is part of the market, even when you spend more than you produce.
George Jefferson Airplane
Footballguy
People are having a hard time getting their head around this, and I agree with this assessment.
For now lower oil prices are negatively impacting financial markets and slowing economic growth domestically. Some people think that if the U.S. produces more oil were in control of the market. That certainly is proving not to be the case here.
George Jefferson Airplane
Footballguy
higgins
Footballguy
I found this interesting...
link
Saudi prince: $100-a-barrel oil 'never' againSaudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50% decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia. Even oil-producing Texas has felt a hit. The astute investor and prince of the Saudi royal family spoke to me exclusively last week as prices spiraled below $50 a barrel. He also predicted the move would dampen what has been one of the big U.S. growth stories: the shale revolution. In fact, in the last two weeks, several major rig operators said they had received early cancellation notices for rig contracts. Companies apparently would rather pay to cancel rig agreements than keep drilling at these prices. His royal highness, who has been critical of Saudi Arabia's policies that have allowed prices to fall, called the theory of a plan to hurt Russian President Putin with cheap oil "baloney" and said the sharp sell-off has put the Saudis "in bed" with the Russians. The interview has been edited for clarity and length.
Q: Can you explain Saudi Arabia's strategy in terms of not cutting oil production?
A: Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.
Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%.
Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.
Q: So this is about not losing market share?
A: Yes. Although I am in full disagreement with the Saudi government, and the minister of oil, and the minister of finance on most aspects, on this particular incident I agree with the Saudi government of keeping production where it is.
Q: What is moving prices? Is this a supply or a demand story? Some say there's too much oil in the world, and that is pressuring prices. But others say the global economy is slow, so it's weak demand.
A: It is both. We have an oversupply. Iraq right now is producing very much. Even in Libya, where they have civil war, they are still producing. The U.S. is now producing shale oil and gas. So, there's oversupply in the market. But also demand is weak. We all know Japan is hovering around 0% growth. China said that they'll grow 6% or 7%. India's growth has been cut in half. Germany acknowledged just two months ago they will cut the growth potential from 2% to 1%. There's less demand, and there's oversupply. And both are recipes for a crash in oil. And that's what happened. It's a no-brainer.
Q: Will prices continue to fall?
A: If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there's some growth in demand, prices may go up. But I'm sure we're never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It's not correct.
Q: Wow. And you said you are in agreement with the Saudi government to not give up market share?
A: This is the only point I'm agreeing with the Saudi Arabian government on oil. That's the only point, yes.
Q: Should the Saudis cut production if they get an agreement with other oil producing countries to take oil off the market?
A: Frankly speaking, to get all OPEC countries to approve and accept it, including Russia and Iran, and everybody else, is almost impossible You can never have an agreement whereby everybody cuts production. We can't trust all OPEC countries. And can't trust the non-OPEC countries. So it's not on the table because the others will cheat. The past has proven that. When Saudi Arabia cut production in the '80s and '90s, everybody cheated and took market share from us. Plus, remember there is an agenda here also. Although Saudi Arabia and OPEC countries did not engineer the reduction in the price of oil, there's a positive side effect, whereby at a certain price, we will see how many shale oil production companies run out of business. So although we are caught off guard by this, we are capitalizing on this matter whereby we'll live with $50 temporarily, to see how much new supply there will be, because this will render many new projects economically unfeasible.
Q: What about the theory of the pressure on the Russians? There's a theory that the U.S. and the Saudis have agreed to keep prices low to pressure Russia because of what Putin has done in Ukraine.
A: Two words: baloney and rubbish. I'm telling you, there's no way Saudis will do this. Because Saudi Arabia is hurting as much as Russia, period. Now, we don't show it because of our big reserves. But I'll tell you Saudi Arabia and Russia are in bed together here. And both are being hurt simultaneously. And there's no political conspiracy whatsoever against Russia. Because we are shooting ourselves in the foot if we do that.
Q: You said the price of oil will dampen the shale revolution in America. How?
A: Shale oil and shale gas, these are new products in the market. And we see big ranges. no one knows for sure what price is the breaking point for shale. Wells have a higher production cost. And very clearly these will run out of business, or at least not be economical. At $50, will it still be economically feasible? Unclear. This is a very much developing story.
Q: Some people believe this crash in oil will create a lot of new mergers in the energy industry. Do you agree?
A: No doubt about that. For sure there'll be a lot of consolidation in the market. Because many small and medium-sized companies can't afford this. Because they are very much dependent on the price of oil. Big companies like Exxon and Chevron are weathering the oil market crash because they are integrated vertically. But no doubt there'll be some mergers and acquisitions coming in one to two years.
link
Saudi prince: $100-a-barrel oil 'never' againSaudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50% decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia. Even oil-producing Texas has felt a hit. The astute investor and prince of the Saudi royal family spoke to me exclusively last week as prices spiraled below $50 a barrel. He also predicted the move would dampen what has been one of the big U.S. growth stories: the shale revolution. In fact, in the last two weeks, several major rig operators said they had received early cancellation notices for rig contracts. Companies apparently would rather pay to cancel rig agreements than keep drilling at these prices. His royal highness, who has been critical of Saudi Arabia's policies that have allowed prices to fall, called the theory of a plan to hurt Russian President Putin with cheap oil "baloney" and said the sharp sell-off has put the Saudis "in bed" with the Russians. The interview has been edited for clarity and length.
Q: Can you explain Saudi Arabia's strategy in terms of not cutting oil production?
A: Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.
Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%.
Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.
Q: So this is about not losing market share?
A: Yes. Although I am in full disagreement with the Saudi government, and the minister of oil, and the minister of finance on most aspects, on this particular incident I agree with the Saudi government of keeping production where it is.
Q: What is moving prices? Is this a supply or a demand story? Some say there's too much oil in the world, and that is pressuring prices. But others say the global economy is slow, so it's weak demand.
A: It is both. We have an oversupply. Iraq right now is producing very much. Even in Libya, where they have civil war, they are still producing. The U.S. is now producing shale oil and gas. So, there's oversupply in the market. But also demand is weak. We all know Japan is hovering around 0% growth. China said that they'll grow 6% or 7%. India's growth has been cut in half. Germany acknowledged just two months ago they will cut the growth potential from 2% to 1%. There's less demand, and there's oversupply. And both are recipes for a crash in oil. And that's what happened. It's a no-brainer.
Q: Will prices continue to fall?
A: If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there's some growth in demand, prices may go up. But I'm sure we're never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It's not correct.
Q: Wow. And you said you are in agreement with the Saudi government to not give up market share?
A: This is the only point I'm agreeing with the Saudi Arabian government on oil. That's the only point, yes.
Q: Should the Saudis cut production if they get an agreement with other oil producing countries to take oil off the market?
A: Frankly speaking, to get all OPEC countries to approve and accept it, including Russia and Iran, and everybody else, is almost impossible You can never have an agreement whereby everybody cuts production. We can't trust all OPEC countries. And can't trust the non-OPEC countries. So it's not on the table because the others will cheat. The past has proven that. When Saudi Arabia cut production in the '80s and '90s, everybody cheated and took market share from us. Plus, remember there is an agenda here also. Although Saudi Arabia and OPEC countries did not engineer the reduction in the price of oil, there's a positive side effect, whereby at a certain price, we will see how many shale oil production companies run out of business. So although we are caught off guard by this, we are capitalizing on this matter whereby we'll live with $50 temporarily, to see how much new supply there will be, because this will render many new projects economically unfeasible.
Q: What about the theory of the pressure on the Russians? There's a theory that the U.S. and the Saudis have agreed to keep prices low to pressure Russia because of what Putin has done in Ukraine.
A: Two words: baloney and rubbish. I'm telling you, there's no way Saudis will do this. Because Saudi Arabia is hurting as much as Russia, period. Now, we don't show it because of our big reserves. But I'll tell you Saudi Arabia and Russia are in bed together here. And both are being hurt simultaneously. And there's no political conspiracy whatsoever against Russia. Because we are shooting ourselves in the foot if we do that.
Q: You said the price of oil will dampen the shale revolution in America. How?
A: Shale oil and shale gas, these are new products in the market. And we see big ranges. no one knows for sure what price is the breaking point for shale. Wells have a higher production cost. And very clearly these will run out of business, or at least not be economical. At $50, will it still be economically feasible? Unclear. This is a very much developing story.
Q: Some people believe this crash in oil will create a lot of new mergers in the energy industry. Do you agree?
A: No doubt about that. For sure there'll be a lot of consolidation in the market. Because many small and medium-sized companies can't afford this. Because they are very much dependent on the price of oil. Big companies like Exxon and Chevron are weathering the oil market crash because they are integrated vertically. But no doubt there'll be some mergers and acquisitions coming in one to two years.
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