Wednesday, December 9, 2015

Oil May Drop to 20 Dollars a Barrel. This Is What Peak Oil Looks Like!

Two articles harvested from The Automatic Earth, December 9th..

Allegedly, it would be a boon for the economy, but in the oil exporting countries and extracting companies it's a fiscal bane that can't be worked around except through austerity. Since the USA has a lot of oil extracting companies, the oil patch won't see the boom! And maybe no one else. Too much debt overload, you know.

Oil Producers Prepare For Prices To Halve To $20 A Barrel

(UK Guardian)

The world’s leading oil producers are preparing for the possibility of oil prices halving to $20 a barrel after a second day of financial market turmoil saw a fresh slide in crude, the lowest iron ore prices in a decade, and losses on global stock markets. Benchmark Brent crude briefly dipped below $40 a barrel for the first time since February 2009 before speculators took profits on the 8% drop in the cost of crude since last week’s abortive attempt by the oil cartel Opec to steady the market. But warnings by commodity analysts that the respite could be shortlived were underlined when Russia said it would need to make additional budget cuts if the oil price halved over the coming months.
Alexei Moiseev, Russia’s deputy finance minister, told Reuters: “If oil goes to $20, we will need to do additional [spending] cuts. Clearly we have shown that we are very willing to cut fiscal spending in line with an oil price at $60, for example. In order for us to be long-term sustainable [with the] oil price at $40, we need to do additional cuts, but if the oil price goes to $20 we need to do even more cuts.” Russia and Saudi Arabia – the world’s two biggest oil producers – both increased spending when oil prices rose to well above $100 a barrel. The fall from a recent peak of $115 a barrel in August 2014 has left all Opec members in financial difficulty, but Saudi Arabia has refused to relent on a strategy of using a low crude price to knock out US shale producers.
Hopes that Opec would announce production curbs to push prices up were dashed when the cartel met in Vienna last Friday, triggering the latest downward lurch in the cost of oil. Lord Browne, the former chief executive of BP, refused to rule out the possibility that oil could halve again in price when he was interviewed by Bloomberg TV. Asked if oil could hit $20 a barrel, Browne – who ran BP from 1995 to 2007 during a period when the cost of crude rose from $10 to $100 a barrel, said in the short term nothing was impossible. He added: “In the long run, $20 is probably wrong, but that’s as far as I’d go.”

Source: UK Guardian

The entire global economy may be facing severe demand destruction in the months ahead and Bloomberg says it’s EXCELLENT! “..the world has enjoyed a windfall equivalent to 2% of GDP it would otherwise have spent on crude..” The crude does come out into the world from the Earth for free, you know; somebody has to pay to get it out -- and they need to make a profit selling it at a price the end-customers can afford. Otherwise, they gotta pay the piper; which means, the money will still be spent on getting the oil to market.

OPEC Provides Economic Stimulus Central Bankers Can’t or Won’t

(Bloomberg Business)

The world’s central bankers just got a helping hand from the world’s oil ministers. As the ECB delivers less monetary stimulus than investors sought and with the Federal Reserve set to tighten next week, the world economy may find support instead from the weakest oil price in more than six years. West Texas Intermediate is trading at about $40 a barrel four days after OPEC chose not to limit output, extending the commodity’s decline from its June 2014 peak of $107.73 and this year’s high of $62.58 in May. While its earlier slide failed to provide the economic pickup some anticipated, economists at UniCredit, Commerzbank and Societe Generale are still banking on cheaper fuel to spur spending by consumers and companies in 2016.

“On net, central bankers should take this as a positive,” said Peter Dixon, an economist at Commerzbank in London. “This does help to stimulate demand by leaving a little bit of money in the pocket and providing a feel-good factor.” At Societe Generale, Michala Marcussen, global head of economics, reckons every $10 drop in the price of oil lifts global growth by 0.1 percentage point. She estimates that since 2014, the world has enjoyed a windfall equivalent to 2% of GDP it would otherwise have spent on crude. “Our biggest relief last week was that OPEC decided no output cut, promising consumers inexpensive oil for longer,” said Marcussen. Even though falling oil may weaken the inflation rates central bankers are struggling to lift, Erik Nielsen at UniCredit said it was important to recognize that it’s “‘good’ disinflation, because it stems from supply rather than demand and so should raise real income, thereby propelling consumption and the recovery.”

“A drop in energy prices is the equivalent of a tax cut, with no implications for debt,” he said, adding that faster expansions as a result should end up bolstering prices too and so investors should be wary of wagering on a deterioration in inflation.

No comments: