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View Full Version : Low Oil Price - Good or Bad?


Flap 5
16th Dec 2014, 06:09
Surprised I haven't seen this one raised.

Lower petrol prices (eventually and by smaller percentage) but oil companies in difficulties and the stock markets for all companies now suffering badly.

mikedreamer787
16th Dec 2014, 06:16
Good - for just about everybody except those in oil futures.

Bad - for the Daish and Iran.

I read yesterday the chairman of OPEC stated he doesn't
know why the price has gone so low given the event has
gone against "market fundamentals" and he is going to
"look into it". Naturally he had to say this in order to calm
the markets.

Flap 5
16th Dec 2014, 06:26
What about pensions invested in the stock market? What about the stability (lack of) of Russia? What about the North Sea oil business and employment there? What about low oil prices causing more rapid using up of finite oil reserves?

rh200
16th Dec 2014, 06:40
Lower petrol prices (eventually and by smaller percentage) but oil companies in difficulties and the stock markets for all companies now suffering badly.

Got a source, saw one the other day on some fruit loop greeny site saying the same thing.

The last reputable source for petroleum and coal/gas I saw didn't seem worried. World wide energy still growing, so is their business. The key is total market share is slowing. What that means is they will still grow, just not as much as before.

Frankly, the cheap hydrocarbons, the harder it is for renewables.

mixture
16th Dec 2014, 06:51
the stock markets for all companies now suffering badly.

No.

Oil only substantially affects oil related companies. Don't believe me ? Go stick MSFT.O and CVX.N on a YTD,3m or 6m chart ... infact here, let me do that for you...

http://s7.postimg.org/ck3bvijxn/behygg.png


There are other things weighing on the markets at the moment short-term that have sweet F.A. to do with oil.

Stock markets have these occasional corrections, but if you're a medium to long-term investor you've little to worry about if you're running a suitably diversified portfolio at a sensible risk level.

Market corrections provide opportunities, as Mr Buffett summarised when he said “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”... not that I'm a Buffett follower, that just happens to be an apt quote !

When it comes to low-oil specifically, there may well be opportunities out there for shrewd investors where opportunities exist, not just the obvious Cement and Airlines.

Flap 5
16th Dec 2014, 07:20
And the more rapid using up of a finite energy commodity? Little to worry about? When I was at school we were told the oil reserves would be running out by now. Low oil prices will lead to greater usage of a cheap commodity and less research into 'sustainable' (don't you hate that word!) energy sources.

By the way the example of Microsoft is a very narrow view of the stock market. Most shares are effected by the oil price, even indirectly. Even easyjet, which should benefit, has fallen back - because it is effected by all the other companies.

Doobry Firkin
16th Dec 2014, 08:10
Good when your car does sub 20mpg...

Bad when you work in the Oil / Gas biz in Aberdeen and there are budget savings for next year and thousands of redundancies on the horizon and your livelihood depends on a 'high' oil price.

(by 'high' i mean the companies are actually making a profit) I have heard it said that the shale gas / tar oil needs a price of $70 to break even, below that it's not viable. We shall see, it could be OPEC teaching the US a lesson for becoming an exporter now instead of an importer and they're refusing to reduce output so the price tanks.

Capetonian
16th Dec 2014, 08:44
Oil price collapse is good news for British people, says George Osborne - Telegraph (http://www.telegraph.co.uk/finance/oilprices/11295457/Oil-price-collapse-is-good-news-for-British-people-says-George-Osborne.html)

Why is the 'fuel surcharge' on a BA LON CPT LON still 239, or 209 on ANC airlines, or 234 on VS, a level where it has been for the last couple of years?

Even if the excuse is buying forward, are they now buying forward further and passing on the saving to consumers?

Next?

mixture
16th Dec 2014, 08:57
By the way the example of Microsoft is a very narrow view of the stock market.

Jeesus christ Flap 5... what the hell do you expect, a 50 page dissertation on the matter ?!?! I quoted you one example, off the top of my head for heavens sake !

Look, quite frankly, your view on matters strikes me as being somewhat amateurish (or if not amateurish, excessively bearish).

You said in relation to the stockmarket that "all companies now suffering badly" .... there are plenty more examples where mine came from, and there are other reasons for me saying what I said. If you can't be bothered to research the matter further then I can't be bothered debating it further with you either.

Worst performing share in my portfolio over the last month is down 8.5%, best performing one is up 9.5%, and as a whole over the last month I'm up 20%. Only 30% of the shares in my portfolio have seen negative performance (between -1% and -8.5%) in the last month ... the other 70% have seen positive performance (2% or higher). So please .... enough of your doom and gloom and saying "all companies now suffering badly" because of oil .... its patently not the case and I've got hard facts to prove it.

Um... lifting...
16th Dec 2014, 09:05
Befriend your local HUMMER sales rep.

When he's sold the last of his allotment, it will be time to go long oil.:E

probes
16th Dec 2014, 10:23
I've been puzzled, too. If the prices are rising, there's complaints about it, if they're coming a bit down, that's bad also. I wonder. With fuels it's never what it seems to be (like the biofuels fuelling food prices).

Andy_S
16th Dec 2014, 10:35
If the prices are rising, there's complaints about it, if they're coming a bit down, that's bad also. I wonder. With fuels it's never what it seems to be.....

On the face of it, lower oil prices are a good thing, but as ever there are unforeseen consequences.

My commute to work is cheaper, and the money I save on fuel will get re-invested in the economy. Then again, I work for an engineering company serving the petroleum industry, so I might be out of a job if the oil price stays low.

My shares in oil companies and equipment suppliers are plunging. Then again, lower energy and raw material costs will benefit some of my other stock market investments. As someone else said, you need a diversified portfolio.

The funds in which my pension is invested are falling in value, but on the other hand the same monthly contributions will now buy more units in those funds.

At the end of the day, these things tend to balance themselves out.

probes
16th Dec 2014, 10:54
Then again, I work for an engineering company serving the petroleum industry, so I might be out of a job if the oil price stays low.
hmmm. Most people do not work in engineering companies and tend to get out of job if the prices are high? Like busdrivers - expensive petrol makes bus tickets more expensive - fewer people take buses - fewer buses and drivers needed; more money on fuel - working Mom needs to sack the cleaner-woman... etc.
So, how come the oil-related jobs are so close to everyone's heart now? [without (much) irony, at that]

ExXB
16th Dec 2014, 11:34
Can someone please explain how a change in the price of a barrel of unrefined petroleum can affect the share price, and profitability of oil companies. They don't own the oil in the ground they buy it.

Using very round numbers in this example lets say it costs oil companies 1 per litre of the raw product, and it costs them 1 to collect it, refine it, deliver it and pump it. They charge 3 on the forecourt.

So the price of the raw product falls by half to 0.50. As long as they can still get 2.50 from us punters they are achieving the exact same p&l as before the decline in the world price. In fact as they are going to slow the decline in retail price their profit margins are actually going to increase!

So, why all the doom and gloom predictions for Big Oil?

flying lid
16th Dec 2014, 11:55
At the end of the day, these things tend to balance themselves out.

Indeed they do. But it will probably be at the end of next year (or two) before they do. And a lot of damage / change, fortunes made / lost along the way.

It's World War 3 being played right now, but it's not just country re country, it's OPEC v Russia v USA & the West v Big international oil companies v Banks v major investors, etc etc. The only winning side will be those who make the most bucks in the shortest time - then there out leaving us mere mortals to pick up (and pay for) the pieces.

Just look at Russia, interest rates up to 17%, major redundancies in Texas, Gulf, Aberdeen announced, etc etc.

Meanwhile, China is laughing all the way to the bank (their bank !!).

Couple of years ago Gold hit the ceiling, today Oil hits the floor. Wonder what will the next international scam.

Lid

Andy_S
16th Dec 2014, 12:09
Can someone please explain how a change in the price of a barrel of unrefined petroleum can affect the share price, and profitability of oil companies. They don't own the oil in the ground they buy it.

Incorrect.

They extract it from the ground and sell it.

In extracting it, they have to pay for exploration, drilling and development - wellheads, rigs, pipelines, processing equipment etc.

These costs are independent of the price of the hydrocarbon they extract, ie will pretty much cost the same regardless of whether oil is $60 / barrel or $120 / barrel. That means that the oil companies are either a) getting a poorer return on the capital they've already expended, or b) developments that might once have been commercially viable are no longer so. This turns sentiment against the company, and since sentiment drives share price the share price will fall.

There's also a knock on effect for sub-suppliers and service providers to the industry; as capital expenditure is cut back and new developments are put on hold, there's less work for us to do and less equipment to sell. Again, that will knock sentiment.

mixture
16th Dec 2014, 12:12
So, why all the doom and gloom predictions for Big Oil?


Well, on my limited understanding of the specifics of the oil industry (oil-heavy stocks have always been a bit of a bargepole to me, so I've only ever done limited reading up on the nitty gritty of the industry) it comes down to basic supply and demand.

With the advent of shale oil, there's more oil available in the world. The oil-drinking yanks are making more of the black stuff on-shore, therefore importing less, therefore requiring the outside world to absorb the excess supply which is happening slowly.

Gas & coal are also heavily linked with oil and exert pressure on oil prices.

Essentially we're looking at a buyer's market at the moment, which means the sellers are being squeezed on both sides.

P.S. Don't forget the forecourt price includes taxes.... which is why the decline in oil has a limited effect at the pumps, and therefore has a limited effect on increasing demand. :cool:

arcniz
16th Dec 2014, 12:47
So, why all the doom and gloom predictions for Big Oil?

My evolving sense of it presently says:

The current trend toward increasing OPEC oil flow marks a muted and polite but serious economic war for global market share and pricing control by OPEC. Since a bit after 1973, OPEC has maintained substantial control of global crude pricing by tweaking their source supply markets with increases and decreases of product availability through a tight coalition of key producers - with the most powerful players in the Arabian Gulf region, but other global producers collaborating from sources as diverse as North Sea, Malaysia, and South America.

Much of OPEC's policymaking over the last 40 years was directed toward establishing price stability and supply control for the USA destination markets, which were long the biggest demand point and the most transparent.

Because OPEC initially kept crude prices lower than possible from costly US sources, and very carefully managed availability as circumstances increased or decreased net US demand during certain periods, OPEC was able to "manage" the global prices for crude in a manner that gave their members reasonably stable profits, while assuring supply for thirsty US & similar clients.

In recent years, policy decisions and some legal accommodations have fostered rapid growth in the "fracking" method for recovering petroleum and gas from rock formations that could not be previously be exploited. This has grown rapidly in the USA, due to govt. policies not discouraging it, and in the doing has gives the Amis a VERY substantial supply source under their own control -- sufficient to break or at least sharply weaken the OPEC monopoly for the moment, even though OPEC reserves are potentially larger AND cheaper to produce than US fracking reserves.

...So, OPEC has abandoned their very sharp practice of limiting supply vs global demand in order to capture market share (and thus pricing control) back from the frackers in the US (and potentially elsewhere). Because OPEC reserves are vast and relatively low-cost to operate, adding "discounted" OPEC supply to the global demand pool will lower the prices that frackers can command and they soon will not be able to produce at a profit, which reasonably will see the partial or complete deconstruction of the high-cost fracking industry. That can substantially and perhaps permanently eliminate the unmanageable (from OPEC pov) extra supply of oil in global markets, restoring the sought-after circumstance (by OPECians) where OPEC can creatively and profitably charge what they will for crude, within certain economic limits and constraints, restoring the "rules" that have prevailed for 40 odd yrs.

The interesting side-note that adds much confusion is the limited defensive capabilities of most OPEC nations and the very expensive monetary and manpower commitments the USA has made and likely will continue to make to encourage some degree of political-military stability in the mideast and similar resource-sensitive regions of the world. The current OPEC moves could be seen as helping support US costs by lowering base oil costs, or as damaging US internal energy sources and their related economies for US foreign exchange flow so as to preserve dependence on the sand-pit.

Wars, revolutions, mideast political instabilities, solar & similar geo-energy sources and Russia's near - infinite supply of energy from natural gas must all be stirred into the oil supply-demand-cost conundrum for analysis for planning future times.

The government in Venezuela seems an almost-certain casualty caught in the dismal-science cross-hairs now, as result of their own poor accounting and the circumstances cited above.

Trossie
16th Dec 2014, 12:58
Low oil prices have to be good for the poor because they can now afford to drive again. The effect of the punitive 'green taxes' that were added to petrol prices pushing them out of the reach of the poor are now being neutralised by the low price of oil.

('Green taxes' were just a way of those champaign socialists making themselves in their upper-middle class feel good about themselves. The rich have been able to afford 'green taxes' but the poor are the ones who have always suffered.)

The effect of low oil prices on the stock market and the resulting effect on pension saving is irrelevant because the poor don't rely on those types of pensions.

The low oil price benefits the poor.

mixture
16th Dec 2014, 13:01
Trossie or should that be Trotsky ? :E

Really ? Seriously ?

I think your view of the world is too heavily influenced by the pages of the Guardian newspaper and thus, regrettably, does not reflect reality.

I don't know where to start replying to your vast incorrectness, so I won't.

cavortingcheetah
16th Dec 2014, 13:38
On the international political scene one might expect Russia and that excellent fellow Putin to find themselves in a close hauled financial position from which the easiest route of extrication would involve something patriotically militarist.
Look for a frothing bear somewhere?
On the British home front, such a significant fall in oil price and petrol prices must lead to a great reduction in revenue for HMRC. This will unbalance Osborne's books and give Labour nothing to gush about. Taxes will definitely have to rise after the May election. Look for a VAT increase to 21%.
In the Middle East, ISIS revenues will fall as the price continues to deteriorate. Look for unpleasant manifestations of that organisation's wrath for its members are incapable of attributing their financial distress to the will of Allah and must needs find Abraham's goat.
As for the poor of Britain, one must only feel pity. So cheap will become the price of fuel that the government, whichever one, will stop the winter fuel allowances. This will lead to the indigent and impecunious freezing to death in the streets and alleys of Britain's great cities. This in turn will reduce the amount of money that has to be spent in benefit payments for the elderly. There will be so many native beggars on the streets of London that the Romanian encampment at Marble Arch will disband itself and return home to the fastness of the Carpathians. Passing clouds etc.......

dazdaz1
16th Dec 2014, 15:34
The upside of the oil drop should see a reduction in manufacturing costs of aspirin, non brewed vinegar and plastic products to name a few.

SARF
16th Dec 2014, 15:52
Cheap oil should boost stocks generally .. But Russia imploding weighs more heavily .. Looks like the cost of Yankee fracked juice is the top of the market for a few decades, barring a middle east war

MG23
16th Dec 2014, 17:01
And the more rapid using up of a finite energy commodity? Little to worry about? When I was at school we were told the oil reserves would be running out by now.

When I was at school, we were told that oil would have run out by the year 2000.

The Doomers have been predicting that oil would soon run out since at least the early 20th century. They've always been wrong.

One day, obviously, they will eventually be correct. But not for a long time yet.

Capetonian
16th Dec 2014, 17:03
Specially for Trossie :

Years ago there was very brave man who drove round Cape Town with a sticker on the back of his Rolls saying : "F**k the Poor." What style!

con-pilot
16th Dec 2014, 17:20
For us and some of our friends this is a two edged sword. We love the price at the pump, currently at $1.86 a gallon, but the drop in the royalty checks is starting to really affect the retirement incomes.

Never the less, everybody around here is still drilling like there is no tomorrow. On a lot of natural gas wells, as soon as they are completed, they plug the hole to wait for the price to come back up, the current average is $3.69 per thousand cubic feet, which is about the breakeven price.

Trossie
16th Dec 2014, 17:31
Trossie or should that be Trotsky ?I really enjoyed that one!!! (Is there a 'tongue-in-cheek' emoticon? If so I should have used it just to emphasise what should have been obvious from 'between the lines'!)

Anything to wind up a 'greenie' or a champaign socialist!! (Now if I had been a Guardian reader I would have been both, wouldn't I? So I wouldn't have been winding them up!)

Cape: nice one!!

Back to the topic: low oil prices are the only saviour for us against the stupidity of 'green taxes'. (There is absolutely nothing 'green' about them, just a way of taxing people who are trying to travel to work... And of course the poor get hit hardest! Must look for that emoticon!!)

G-CPTN
16th Dec 2014, 18:10
At what stage will the drive towards 'green' (?) energy slow and, possibly, reverse?

The subsidies being offered for building windmills and other means of generating electricity will, surely, founder when the cost of generating from oil falls?

Lonewolf_50
16th Dec 2014, 19:27
Locally, a few of the folks I know in the oil field support and supply business are seeing work slow down.
Pink slips being issued.
Quite a bit of the Eagle Ford Shale production ventures are doing OK, but as con notes, the Natural Gas exploration has slowed to a crawl, pending a rise in price, while crude is either missing its margin or damned close to it at the current price per barrel. So, quite a few local reserves are being put into a holding pattern.

Yes, the Saudis are not interested in their revenue per barrel getting to low.
They have never been above sending a signal here and there to let people know who can really jack the price around.

con-pilot
16th Dec 2014, 19:43
Yes, the Saudis are not interested in their revenue per barrel getting to low.

Well I don't know, one of them had to sell his private A-380.

Poor guy, I really feel for him having to go back to using his 747.