Oil Prices

[aubfaninga 16]

I know absolutely nothing about investments, futures, banking, and all that other economy stuff so I decided to throw this on here.

I can see the short term positives to these low oil prices but what is happening behind the veil? Is there any negative effects that might spring back hard and fast if prices continue to stay this low or lower? How about Oil Derivatives? Is there anyway of knowing if they (people buying and trading OD) saw this coming?

As you can see, my fear is based around what little I learned from the housing market. All I know is when prices drop and stay low things have to happen. Some positive and some negative.

Thanks for any help

[alexava 6,769]

i only know oil is money. before gas blew up in 08 the oil people were all eating steak. then it nearly tripled. it dipped back down briefly then blew up again and has held steady till now. i know times in my life gas prices didnt change for years at a time. then in 08 it rises by 70 or 80cents/gal in a week. something is wrong with that. i have no idea why or how it fell so much but it is getting down about where it should have been all along.

[AUUSN 823]

From my Geopolitical lens, I'm seeing this as OPECs (a large Sunni organization) move against Iran, Russia and Syria. The Saudis think they can withstand a drop in prices while Russia and Iran can't. That doesn't bode well in our fracking efforts though.

"This week, oil fell through the price floor of $60 a barrel and gas at my local filling station was $2.26 a gallon.

That’s great news for commuters and almost every business, but wonderfully bad news for our ugliest enemies.

If oil prices remain low through next year, the effect on rogue governments, from the Russian Federation to Venezuela, will go from damaging to devastating.

But Western economies (and China’s) stand to benefit, with cheap oil possibly tickling Europe’s snoozing markets awake. Even most underdeveloped states will get a welcome break.

This price plunge has been driven by Saudi Arabia, OPEC’s dominant power. While it’s true that part of Riyadh’s actions respond to the energy renaissance in North America, the greater motivation is breaking Iran’s will.

The Saudis believe they can no longer rely on the US to contain Tehran’s imminent nuclear threat, so they’re out to do what our lukewarm sanctions couldn’t." http://nypost.com/2014/12/14/saudi-arabias-oil-war-against-iran-and-russia-2/

[buzzurd24 11]

OPEC, mainly the Saudis, finally realized that $100 was bad for their business long-term. $100 oil made it worth investing in the Western Hemisphere and now they see western countries starting to pump more and more of their own oil. There is a chart that shows it takes ~$70 a barrel for places like California, or the Gulf to breakeven. While the middle east's breakeven point is more like $10 - $20/barrel. The Saudis want to bring prices back down to try and "demotivate" western production. Where I'm going with this is the only safe thing to assume is there will not be any bounce back up this time unless the Saudis abruptly cut production, which all their actions have said they won't. Alabama should see $1.99 gas by January.

[TheBlueVue 177]

This drop transcends geo-politics and is driven like everything else... by supply and demand. Globally, demand has trailed off significantly in the face of global recession. Add to that O-PEcs unwillingness or inability to curtail production along with America, the largest consumer of oil in the world, finding itself less and less dependent on imported oil and actually becoming a net exporter. There is a glut of oil pouring into the market met with decreasing demand. There is more room to the downside for oil to go and I wont be surprised if it drops to $40 a barrel or thereabouts within 90 days.

Russia will be hurt by this the most because ALL they've got is oil to export and their economy needs $100 a barrel oil to remain solvent. Their currency is taking a beating in currency markets has dropped nearly 50% against the dollar and they just increased their prime rate from 10% to 17% to try to stop the complete collapse of their currency.There is more upside to lower oil prices than downside for the USA. We live in a distribution society and oil prices affect the cost of everything from groceries to heavy durable goods. Its a good thing for everyone but those invested in fracking where in most instances, I believe, the break even point is around $40 - $50 dollars a barrel.

[AUtiger98 24]

Each of you have made great points. As you can see there are many factors which are affecting the price. If you're looking for what may be coming, I'll point you to Blue's comment.

Globally, demand has trailed off significantly in the face of global recession.

A guru on YouTube said that demand is down due to production being down. Does that mean we are headed for a recession? He certainly thought so.

Peter Schiff puts out some good YouTube videos on the markets. He's brutally honest.

This is a good one to listen too.

As a vendor for oil companies, I can tell you they will cut production in areas where the break even point cannot be met. Once the price rises about the break even point they will restart the project.

Edited December 16, 2014 by AUtiger98

[japantiger 3,748]

This drop transcends geo-politics and is driven like everything else... by supply and demand. Globally, demand has trailed off significantly in the face of global recession. Add to that O-PEcs unwillingness or inability to curtail production along with America, the largest consumer of oil in the world, finding itself less and less dependent on imported oil and actually becoming a net exporter. There is a glut of oil pouring into the market met with decreasing demand. There is more room to the downside for oil to go and I wont be surprised if it drops to $40 a barrel or thereabouts within 90 days.

Russia will be hurt by this the most because ALL they've got is oil to export and their economy needs $100 a barrel oil to remain solvent. Their currency is taking a beating in currency markets has dropped nearly 50% against the dollar and they just increased their prime rate from 10% to 17% to try to stop the complete collapse of their currency.There is more upside to lower oil prices than downside for the USA. We live in a distribution society and oil prices affect the cost of everything from groceries to heavy durable goods. Its a good thing for everyone but those invested in fracking where in most instances, I believe, the break even point is around $40 - $50 dollars a barrel.

+1

[aubfaninga 16]

Each of you have made great points. As you can see there are many factors which are affecting the price. If you're looking for what may be coming, I'll point you to Blue's comment.

Globally, demand has trailed off significantly in the face of global recession.

A guru on YouTube said that demand is down due to production being down. Does that mean we are headed for a recession? He certainly thought so.

Peter Schiff puts out some good YouTube videos on the markets. He's brutally honest.

This is a good one to listen too.

As a vendor for oil companies, I can tell you they will cut production in areas where the break even point cannot be met. Once the price rises about the break even point they will restart the project.

Thanks...

I know I did not articulate my question very well but I think you addressed my fears. I am not so worried about why the prices are dropping or even if they will shoot back up in prices but I was curious to see how the economy is effected or if it was a sign that something is amiss in our economy.

Thanks again for your answers

[cooltigger21 0]

This drop transcends geo-politics and is driven like everything else... by supply and demand. Globally, demand has trailed off significantly in the face of global recession. Add to that O-PEcs unwillingness or inability to curtail production along with America, the largest consumer of oil in the world, finding itself less and less dependent on imported oil and actually becoming a net exporter. There is a glut of oil pouring into the market met with decreasing demand. There is more room to the downside for oil to go and I wont be surprised if it drops to $40 a barrel or thereabouts within 90 days.

Russia will be hurt by this the most because ALL they've got is oil to export and their economy needs $100 a barrel oil to remain solvent. Their currency is taking a beating in currency markets has dropped nearly 50% against the dollar and they just increased their prime rate from 10% to 17% to try to stop the complete collapse of their currency.There is more upside to lower oil prices than downside for the USA. We live in a distribution society and oil prices affect the cost of everything from groceries to heavy durable goods. Its a good thing for everyone but those invested in fracking where in most instances, I believe, the break even point is around $40 - $50 dollars a barrel.

Russia is in deep trouble. They have already hit a recession and its only going to get worse. Prices have doubled in a lot of areas. Money is leaving the country in droves. Now none of that is going to change the actions of Putin at a least not anytime soon.