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Falling Oil Price

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For the consumer this might be a good thing (if it ever gets passed on).

 

http://www.bbc.co.uk/news/business-30247276

 

Basically the US through Shale Gas is responsible. This does not help us a lot and you have super major oil companies in Europe like Statoil and Total could seriously go to the wall, because their break even costs were $90-$115 a barrel. This is more due to drilling and appraisal costs. The contractors offering oilfield services have lined their pockets as much as the oil majors were prepared to pay. In the past OPEC have done something to regulate it - but out of their hands now - because the biggest consumer is self sufficient.

 

It is a global energy crisis in the making. Whether that is an advert for Shale Gas and self sufficiency in Europe is another question. The majority of oil companies had pinned $80-$90 as a steady price (Brent Crude say). And it has all gone tits up. This is not a good thing. 

 

 

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An interestingly negative view. 

 

While it's true that certain companies and countries do require higher costs (though i suspect the actual cost of getting the barrel is pretty cheap, costs pushing it up the break-even point for Statoil will be its investments programmes) it's worth noting that these companies (the producers at least) are unlikely to fold simply due to the fact that oil reserves are an asset they can borrow against. The real losers and companies that go bust are the private exploration companies because one of the first things to go as producers ride out low oil prices is further exploration, this in itself also means that the floor is higher than it otherwise would be even before we consider production cuts which may eventually come late next year.

 

For Saudi (the main opposition to cuts in OPEC) their hope is that the low prices will kill some of the shale exploration and production, they have sufficient cash that they ride out low prices for years. For the US there's obviously domestic and geopolitical reasons to pump production because they get the jobs, growth, some fields can be profitable still at $28 and they whollop Russia, Iran and Venezeula who all need prices well above $100 per barrel.

 

So on the whole it will clearly damage one sector of the economy (not one that the UK is dependent on much and Scotland is shielded by Westminster getting oil and gas revenues) but for consumers in the US, EU and China this is likely to be a good thing meaning that the trade impact from faltering petro-economies should not be one that effects us significantly.

 

...

 

Personally i do take it as an advertisement for fracking in the UK although i believe various bits of EU regulation mean we wouldn't be able to gain to the degree the US has. 

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Saudis are just doing this to put the US shale producers out of business. The latter need ~$80/barrel for it to be profitable.

 

A few months below this and they'll fail. Investors will not be keen to invest again lest the Saudis just do the same once more. Saudi will then reduce production and the price will go back up again. As SB says, some of the OPEC countries will pressure Saudi for the price to go back up as soon as possible as they need the revenues; Saudi having a big oil fund it can dip into while others don't.

 

Total, Statoil etc will not 'go to the wall'; they work looking 20-30 years into the future taking into account that there will be rises and falls in price, sometimes dramatic. All they'll do is put some new developments on hold for a bit etc and focus on maximising recovery from existing developments. They'll also use the situation to push for tax breaks etc, which it would be wise for the UK government to give.

 

In the North Sea we have fields which start as low as $10/barrel to produce from; hence business e.g. just ambled along generating huge profits in the late 1980's to 2000 when the price fell to ~$25/barrel for nearly 15 years. You'd really need the price to drop below $50/barrel for a number of years for it to really start biting the big producers. That is highly improbable. They'll also keep busying themselves with e.g. gas developments; gas price not being directly linked to oil price.

 

The UK government of course will be able to weather the temporary loss in revenues as they have an oil stabilisation fund / sovereign wealth fund like Norway, Saudi etc. Oh, wait, no, the UK government doesn't...

 

---

 

EDIT Saudis did this to the US drillers in 1986. Totally screwed them. 

 

http://business.financialpost.com/2014/11/26/fears-of-opec-price-war-evokes-ugly-memories-of-1986-oil-bust-for-u-s-drillers/?__lsa=b591-3616

Edited by scottish skier
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The single fact it is hitting prices now that may affect some producers highlights that they have been creaming a big profit from us for years.

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Saudis are just doing this to put the US shale producers out of business. The latter need ~$80/barrel for it to be profitable.

 

A few months below this and they'll fail. Investors will not be keen to invest again lest the Saudis just do the same once more. Saudi will then reduce production and the price will go back up again. As SB says, some of the OPEC countries will pressure Saudi for the price to go back up as soon as possible as they need the revenues; Saudi having a big oil fund it can dip into while others don't.

 

Total, Statoil etc will not 'go to the wall'; they work looking 20-30 years into the future taking into account that there will be rises and falls in price, sometimes dramatic. All they'll do is put some new developments on hold for a bit etc and focus on maximising recovery from existing developments. They'll also use the situation to push for tax breaks etc, which it would be wise for the UK government to give.

 

In the North Sea we have fields which start as low as $10/barrel to produce from; hence business e.g. just ambled along generating huge profits in the late 1980's to 2000 when the price fell to ~$25/barrel for nearly 15 years. You'd really need the price to drop below $50/barrel for a number of years for it to really start biting the big producers. That is highly improbable. They'll also keep busying themselves with e.g. gas developments; gas price not being directly linked to oil price.

 

The UK government of course will be able to weather the temporary loss in revenues as they have an oil stabilisation fund / sovereign wealth fund like Norway, Saudi etc. Oh, wait, no, the UK government doesn't...

 

---

 

EDIT Saudis did this to the US drillers in 1986. Totally screwed them. 

 

http://business.financialpost.com/2014/11/26/fears-of-opec-price-war-evokes-ugly-memories-of-1986-oil-bust-for-u-s-drillers/?__lsa=b591-3616

 

Thanks for interesting post SS. Still if the price remains low for a period then the Russian economy will be down the toilet. Mind Venezuela will probably join them.

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My view is that as the barrels per ounce oil to gold ratio goes up the Saudis need to increase market share to insure the their social payments into the future, so they may have to let the price drop until the price of gold drops or demand picks up. The push to electric cars could push demand of LNG and away from oil, the price could drop back to $35 for a time as it did in January 2009.

Edited by gigabite

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The single fact it is hitting prices now that may affect some producers highlights that they have been creaming a big profit from us for years.

 

Yes and No.

 

At the pump, its the huge taxes that hit you. Without them, the price would be pretty cheap. Couldn't believe it when I was in Menorca and the petrol was so cheap compared to Scotland which exports 90% of the oil it produces.

 

If the industry had remained nationalised in the UK rather than being privatised by Thatcher, prices could be a lot lower in general. Nationalisation means you get all the profits / revenues, not just some revenues in tax which oil companies try to avoid as much as possible. You can also pump that into a sovereign wealth fund to tide you over in periods where the price is low. Lower prices at the pump are also good economically.

 

Gas is different; it is less susceptible to economic fluctuations as it is so dominated by the heating market; you need to heat your home however the economy is performing. Of course the fact that it is such a basic necessity makes it prime for cartel type behaviour which is what is happening to an extent here among the big suppliers. Again, if we had a nationalised gas industry we'd not have this problem.

 

You can keep nationalised and benefit from private sector input by going with a Statoil (State Oil literally) model where you own say 60% and take private investment for the remainder (statoil is currently 67% owned by the Norwegian government).  

 

---

 

Knocker. The Russians have an interest in the shale producers going under too. All countries with conventional oil have an interest in that, including Scotland. It really is a question of who blinks first and in all probability it will be the shale producers. Its an embryonic industry on a tight margin with little infrastructure (e.g. network of pipelines which would make it more viable long term). Mainly done by small companies borrowing lots from banks / investors and so very susceptible to a price drop.

 

The big producers have not gone into shale oil because they know it's a highly risky business. If it is crushed at this stage, it will struggle to get off the ground again. Let it develop and it will find ways to reduce costs, e.g. by laying pipelines, developing more efficient extraction methods. Then it could become potentially more of a threat to conventional oil. Hence the attack from the Saudis - to an extent backed by others such as Russia even if it hurts them short term - now.

 

To an extent what's happening was foreseen. Most forecasts showed a fall in price into 2015 before rising steadily again.

 

Start-up 'Bob's shale oil Co' banked on OPEC keeping prices high. The majors were less confident in this so largely stayed clear. The majors were right.

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A year or so ago i published a message in another thread about what the price of unleaded should've been at the pumps, taking into account the tax, the price of a barrel of oil and the £/$ exchange rate.

Having revisited today the price should be around 110p/litre.

Lowest price near to me today is 117.5p for unleaded.

The supermarkets are still profiteering.

The 'independents' are profiteering even more, although i understand the indes cant really compete with the big supermarkets.

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The supermarkets are still profiteering.

The 'independents' are profiteering even more, although i understand the indes cant really compete with the big supermarkets.

 

That's capitalism BB!

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Yes and No.

 

At the pump, its the huge taxes that hit you. Without them, the price would be pretty cheap. Couldn't believe it when I was in Menorca and the petrol was so cheap compared to Scotland which exports 90% of the oil it produces.

 

If the industry had remained nationalised in the UK rather than being privatised by Thatcher, prices could be a lot lower in general. Nationalisation means you get all the profits / revenues, not just some revenues in tax which oil companies try to avoid as much as possible. You can also pump that into a sovereign wealth fund to tide you over in periods where the price is low. Lower prices at the pump are also good economically.

 

Gas is different; it is less susceptible to economic fluctuations as it is so dominated by the heating market; you need to heat your home however the economy is performing. Of course the fact that it is such a basic necessity makes it prime for cartel type behaviour which is what is happening to an extent here among the big suppliers. Again, if we had a nationalised gas industry we'd not have this problem.

 

You can keep nationalised and benefit from private sector input by going with a Statoil (State Oil literally) model where you own say 60% and take private investment for the remainder (statoil is currently 67% owned by the Norwegian government).  

 

---

 

Knocker. The Russians have an interest in the shale producers going under too. All countries with conventional oil have an interest in that, including Scotland. It really is a question of who blinks first and in all probability it will be the shale producers. Its an embryonic industry on a tight margin with little infrastructure (e.g. network of pipelines which would make it more viable long term). Mainly done by small companies borrowing lots from banks / investors and so very susceptible to a price drop.

 

The big producers have not gone into shale oil because they know it's a highly risky business. If it is crushed at this stage, it will struggle to get off the ground again. Let it develop and it will find ways to reduce costs, e.g. by laying pipelines, developing more efficient extraction methods. Then it could become potentially more of a threat to conventional oil. Hence the attack from the Saudis - to an extent backed by others such as Russia even if it hurts them short term - now.

 

To an extent what's happening was foreseen. Most forecasts showed a fall in price into 2015 before rising steadily again.

 

Start-up 'Bob's shale oil Co' banked on OPEC keeping prices high. The majors were less confident in this so largely stayed clear. The majors were right.

Fail to see what tax and duty by any gov has to do with a global priced commodity sold in the UK, your just using it as a political toy to argue against a certain party.  My post was about the global cost of a barrel per$ and how much the oil producers were/are making as the raw priced rose.

 

Keep your feral politics out of my points please.

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Fail to see what tax and duty by any gov has to do with a global priced commodity sold in the UK, your just using it as a political toy to argue against a certain party.  My post was about the global cost of a barrel per$ and how much the oil producers were/are making as the raw priced rose.

 

Keep your feral politics out of my points please.

 

Actually, I'm using it as a target against a number of parties and it was a valid point. Westminster will take a revenue hit because it has no stabilisation fund. While not in OPEC, the UK is still an oil producer.

 

I also talked about prices and profits of companies, including cartel type behaviour, notably for gas. My comment on prices at pumps at tax is true. 

 

unleaded-12th-august-2011.png

 

You are being sold something that belongs to you (your country) and being heavily taxed on it. Nationalisation means at minimum you only need to pay the actual cost of production.

 

Your 'feral' comment comes across as classic projection

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Actually, I'm using it as a target against a number of parties and it was a valid point. Westminster will take a revenue hit because it has no stabilisation fund. While not in OPEC, the UK is still an oil producer.

 

I also talked about prices and profits of companies, including cartel type behaviour, notably for gas. My comment on prices at pumps at tax is true. 

 

unleaded-12th-august-2011.png

 

You are being sold something that belongs to you (your country) and being heavily taxed on it. Nationalisation means at minimum you only need to pay the actual cost of production.

 

Your 'feral' comment comes across as classic projection

My point or "comment" of 'feral' was that the thread is not and cannot be used for a global commodity for local party politics, you said a local party was at blame for blah blah blah duty and tax, but the thread is clearly about global oil prices, one which they have no say on.

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My point or "comment" of 'feral' was that the thread is not and cannot be used for a global commodity for local party politics, you said a local party was at blame for blah blah blah duty and tax, but the thread is clearly about global oil prices, one which they have no say on.

 

Are you the official mod for this thread now?

 

We are not allowed to discuss economic impacts which of course depend on government policy, both here and abroad?

 

The very first line of the very first post is talking about that.

 

Anyway, you took my factual post as an attack on a party. It was a statement of fact comparing the UK to other oil producing countries and how they will be affected differently. It is revealing that you read it as a 'feral' attack as this strongly suggests you agreed with it being a bad policy by the party concerned; hence the need to get all defensive and resort to insults.

 

And the price of a barrel of oil is not dependent on the market. That only applies if it is sold on the open market. For a nationalised producer, the price of a barrel of oil is the cost of producing it.

Edited by scottish skier

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None of the above seems to explain why domestic energy-prices are staying at their current levels; the cartel's very quick at citing raised barrel-prices as the justification for all their recent hikes...Do they have a license to print money?

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None of the above seems to explain why domestic energy-prices are staying at their current levels; the cartel's very quick at citing raised barrel-prices as the justification for all their recent hikes...Do they have a license to print money?

 

Gas prices remain relatively high. Norway has a few unplanned field outages and concerns remain over Russia which supplies a large chuck of gas to the Europe network. Oil is not used much for domestic energy; more for transport and petrochemicals (hence it fluctuates more with the economic cycle).

 

https://www.energyvoice.com/oilandgas/69343/uk-gas-rises-longest-streak-year-cold-norway-outages/

 

UK gas rises in longest streak in year on cold, Norway outages

 

 

But yes, we have a cartel-type situation with the market to an extent. Such things are hard to avoid where a product is a necessity rather than a luxury and the industry is privatised.

Edited by scottish skier

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None of the above seems to explain why domestic energy-prices are staying at their current levels; the cartel's very quick at citing raised barrel-prices as the justification for all their recent hikes...Do they have a license to print money?

 

The last time it fell quickly in 09 i do remember they cut the cost by 25%.. but we had to wait until March.

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Are you the official mod for this thread now?

 

We are not allowed to discuss economic impacts which of course depend on government policy, both here and abroad?

 

The very first line of the very first post is talking about that.

 

Anyway, you took my factual post as an attack on a party. It was a statement of fact comparing the UK to other oil producing countries and how they will be affected differently. It is revealing that you read it as a 'feral' attack as this strongly suggests you agreed with it being a bad policy by the party concerned; hence the need to get all defensive and resort to insults.

 

And the price of a barrel of oil is not dependent on the market. That only applies if it is sold on the open market. For a nationalised producer, the price of a barrel of oil is the cost of producing it.

Where the hell did I resort to insults?

 

A global price is just that and UK resident parties have come and gone without change to that, they have all however added tax and duty to the UK cost and  it's refined offspring and never reduced it, that is *ALL* parties

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A global price is just that and UK resident parties have come and gone without change to that, they have all however added tax and duty to the UK cost and  it's refined offspring and never reduced it, that is *ALL* parties

 

There is a market price and as noted, a domestic production price for nationalised industries. The former is much higher than the latter for obvious reasons; profit.

 

Not all parties, no. There are some that support an oil stabilisation / sovereign wealth fund and would start part-renationalisation of the industry, at least by taking a controlling stake in new developments. They are on the ballot in May 2015, at least in one part of the country.

 

Recently, George Osborne as suggested a sovereign wealth fund for English shale gas so the Tories may yet go down this road 50 years or so after it could have been started. Suggests they realise the mistake they made / continue to make.

Edited by scottish skier

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Gas prices remain relatively high. Norway has a few unplanned field outages and concerns remain over Russia which supplies a large chuck of gas to the Europe network. Oil is not used much for domestic energy; more for transport and petrochemicals (hence it fluctuates more with the economic cycle).

 

 

But yes, we have a cartel-type situation with the market to an extent. Such things are hard to avoid where a product is a necessity rather than a luxury and the industry is privatised.

The problem is SS, when gas & electricity prices were shooting up, we were told that this was because the markets linked the price of gas, to that of oil. Now that the oil price has crashed, this "link" seems to have failed. As with everything else in the "free" market, it only works to fleece the public.
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Well prices are back to 2009 levels bar the price at the pumps. The good news is this will put fracking on the back burner in the UK if the prices keep falling. Bad news less demand for alternative greener fuels. If the fuel prices keep falling at the pump it will lead to increase of car use and pollution as well. It should also mean the consumer has more to spend at the shops.

Governments will face falling tax income and the fear of negative inflation will grow. Employers will also see the opportunity not to give pay increases except to the fat cats at the top.

Interesting times.

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Well prices are back to 2009 levels bar the price at the pumps. The good news is this will put fracking on the back burner in the UK if the prices keep falling. Bad news less demand for alternative greener fuels. If the fuel prices keep falling at the pump it will lead to increase of car use and pollution as well. It should also mean the consumer has more to spend at the shops.

Governments will face falling tax income and the fear of negative inflation will grow. Employers will also see the opportunity not to give pay increases except to the fat cats at the top.

Interesting times.

 

Pay increases in the private sector are never really linked to inflation (employers don't care how much you apparently need to live), instead they are loosely linked to profit margins at times of full or near full employment (we still have too much slack). Your points valid for the public sector though.  

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Pay increases in the private sector are never really linked to inflation (employers don't care how much you apparently need to live), instead they are loosely linked to profit margins at times of full or near full employment (we still have too much slack). Your points valid for the public sector though.  

 

In our SME (uni spin-out) we give a minimum yearly increase in-line with inflation. The 'ability to live' for our staff is very important to us. Not thinking in that way is short-termism and shows a complete lack of business acumen.

 

We also hold a very large cash reserve which would allow us to operate for up to a year with no income. That way none of our staff will suddenly get a shock and find themselves out of work if we hit a downturn.

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In our SME (uni spin-out) we give a minimum yearly increase in-line with inflation. The 'ability to live' for our staff is very important to us. Not thinking in that way is short-termism and shows a complete lack of business acumen.

 

We also hold a very large cash reserve which would allow us to operate for up to a year with no income. That way none of our staff will suddenly get a shock and find themselves out of work if we hit a downturn.

Indeed, it is the same at our place aswell (plastics manufacturing). Spare cash tends to be saved for a rainy day or invested (cash reserve, new equipment, more staff) rather than sent away as dividends to shareholders.

 

Things seem to have fundamentally changed since 2007 in a lot of places where payrises have disappeared (at least for all except the CEOs). Its not due to lack of profits or difficult times either, but rather a change in culture. What I don't understand is how they expect it to be sustainable? In a economy such as ours which is based on spending how can companies 'expect' increasing profits and growth each year if the consumers (i.e their employees) incomes are frozen?

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On the wages part apparently the ONS have calculated that for those in work more than a year, pay has actually grown 4.1%.

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