|Posted by:||Huw Burford-Taylor|
|Bringing Johnny Putin in line is a side effect, what you are seeing is (as pretty much with everything) a combination of events, that in this instance have produced a perfect storm. |
Over the last 5/6 years fracking has boomed in the states as they have sought to become less dependent on middle east oil, this has meant that whereas 5 years ago the US imported 50% of the oil they needed that figure is now closer to 20% reducing the demand for oil imports. Combine this with a slowing economy in China and a flatlining Eurozone and you have increased availability and reduced demand, two powerful enough price deflationary factors, but this time there's a third.
Ordinarily increased supply + reduced demand would = OPEC reducing production to bolster prices, but Saudi Arabia, the most important member is essentially making a power play. They have enough cash reserves to ride out 18 months to two years of oil pricing at this level or below before they feel any significant pain, but most fracking production in the states is only sustainable at US$ 80-85 per barrel, now the majority of the producers will have hedged their oil at those levels for 2015 meaning this is likely to go on for the next year at least. Saudi Arabia's other target is Iran, which is far less capable of riding out oil pricing at this level, and it's in Saudi Arabia's interests to have a weaker Iran regionally. OPEC (principally Saudi Arabia) are gambling that they can drive fracking in the US out of business, but other members are liable to suffer significant short term pain in the process, the Americans, so far, have basically said "bring it on" which is why pricing continues to tumble.
The side effects of this is that other OPEC members (Venezuela, Iran, Iraq and others) will suffer disproportionately, and Russia's economy, which is heavily dependent on oil exports to balance the books, and in combination with existing western sanctions is likely to get spanked (a technical term).
Short term what does this all mean for us? Well it's already £15-20 cheaper than it was to fill my car up than it was at the start of the summer, and my house is oil fired so I'm just about to fill up my oil tank at roughly 60% of what it cost a year ago. High energy prices are a powerful inflationary factor and a huge brake on the economy, people having more money in their pockets to spend on other things will be a stimulus and oil dependent industries (i.e. pretty much everyone) will benefit.
Long term? Not so great. Oil pricing this low means that an awful lot of oil fields under development will be mothballed as fields that make sense to exploit at US$ 85-90-95 per barrel simply don't at sub US$ 60. The longer this lasts, it means that when oil prices do bounce back, and they will, the spike will be higher, longer and more painful for all concerned.
Then you have to add in the Putin factor, autocratic leaders are well known for striking out at a perceived external threat to distract from internal difficulties, and it would suit him to paint this as an American orchestrated plot to destabilise Russia, rather than the confluence of events that it is, to provide him with an excuse to lash out. Let's all hope it doesn't come to that. Hopefully the west will lift the sanctions they have imposed, as the oil price set by global markets is causing Russia far more pain than we ever could.
|Topic||Date Posted||Posted By|
|OIL Prices||16/12/14 22:37:00||Julian Pavey|
|Re:OIL Prices||16/12/14 22:49:00||Janine Jarvis|
|Re:Re:OIL Prices||17/12/14 09:05:00||Huw Burford-Taylor|
|Re:Re:Re:OIL Prices||17/12/14 10:21:00||Will Watson|
|Re:Re:Re:Re:OIL Prices||17/12/14 10:34:00||Guy Lambert|
|And renewables||17/12/14 15:08:00||Ken Munn|
|Re:And renewables||17/12/14 15:17:00||Jonathan Bingham|
|Re:Re:OIL Prices||17/12/14 09:31:00||Susan Kelly|
|Re:Re:Re:OIL Prices||17/12/14 10:26:00||David Cuss|
|Re:Re:Re:Re:OIL Prices||18/12/14 11:51:00||Sam Hearn|
|Re:Re:Re:Re:Re:OIL Prices||18/12/14 11:54:00||Sam Hearn|
|Re:Re:Re:Re:Re:Re:OIL Prices||18/12/14 12:00:00||Will Watson|
|Re:Re:Re:Re:Re:Re:OIL Prices||18/12/14 12:00:00||Carl Wynne|
|Re:OIL Prices||18/12/14 12:55:00||Sebastian Smeck|
|Re:Re:OIL Prices||18/12/14 13:10:00||Julian Pavey|
|Now the oil price has crashed, their silence is deafening.||23/12/14 12:35:00||Sam Hearn|
|Re:Now the oil price has crashed, their silence is deafening.||23/12/14 13:09:00||Huw Burford-Taylor|
|Re:Re:Now the oil price has crashed, their silence is deafening.||23/12/14 13:23:00||Julian Pavey|
|Re:Re:Re:Now the oil price has crashed, their silence is deafening.||23/12/14 13:41:00||Huw Burford-Taylor|
|Re:Re:Re:Re:Now the oil price has crashed, their silence is deafening.||23/12/14 13:52:00||Sam Hearn|
|Re:Re:Re:Re:Re:Now the oil price has crashed, their silence is deafening.||23/12/14 13:58:00||Huw Burford-Taylor|
|Re:Re:Re:Re:Re:Re:Now the oil price has crashed, their silence is deafening.||24/12/14 16:37:00||Sebastian Smeck|
|Re:Re:Re:Re:Re:Re:Re:Now the oil price has crashed, their silence is deafening.||24/12/14 17:24:00||Peter Millman|
|Re:Re:Re:Re:Re:Re:Re:Now the oil price has crashed, their silence is deafening.||29/12/14 09:03:00||Huw Burford-Taylor|