Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Oil is down - and this is bad?
Old 11-09-2018, 05:01 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Jan 2017
Posts: 1,123
Oil is down - and this is bad?

OK, maybe some of you whiz-kid investor types can explain this:

Oil just did something it hasn’t done in more than 30 years (hint: it isn’t good)

If I understand correctly, the article suggests that lower oil prices are bad.

Now, for me personally, for everyone I know, and for every business I can think of (except oil producers and their support industries), lower oil prices are a good thing.

I've observed that that overall economy seems to do poorly when oil prices spike, although admittedly ExxonMobile stockholders do well.

I look at oil prices like taxes. Something everyone has to pay, and something that's priced into every product we buy. Lower the "tax" and it frees up all kinds of money which does its multiplier effect thing throughout the economy.

So why are the financial news outlets always crying when the price goes down, and happy when it goes up?
__________________

CaptTom is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-09-2018, 05:11 PM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 45,422
Here ya go:

How Oil Prices Impact the U.S. Economy

Quote:
Before the resurgence in U.S. oil production, drops in the price of oil were largely viewed as positive because it lowered the price of importing oil and reduced costs for the manufacturing and transport sectors. This reduction of costs could be passed on to the consumer. Greater discretionary income for consumer spending can further stimulate the economy. However now that the United States has increased oil production, low oil prices can hurt U.S. oil companies and affect domestic oil industry workers.

.......

The other groups that tend to suffer when U.S. oil prices drop are the banking and investment sectors. There are a lot of different companies drilling and servicing wells on the shale deposits, and many of these companies finance their operations by raising capital and taking on debt. This means that investors and banks both have money to lose if the price of oil drops to where new wells are no longer profitable and the companies dependent on drilling and service then go out of business. Of course, investors and bankers are well-versed in risks and rewards, but the losses still destroy capital when they happen. Between the job losses and the capital losses, a dip in oil prices can trim the growth of the U.S. economy.
__________________

__________________
Numbers is hard

Charter resident of the lumpen slums of cyberspace

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 11-09-2018, 05:12 PM   #3
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 10,268
Quote:
Originally Posted by CaptTom View Post
OK, maybe some of you whiz-kid investor types can explain this:

Oil just did something it hasn’t done in more than 30 years (hint: it isn’t good)

If I understand correctly, the article suggests that lower oil prices are bad.

Now, for me personally, for everyone I know, and for every business I can think of (except oil producers and their support industries), lower oil prices are a good thing.

I've observed that that overall economy seems to do poorly when oil prices spike, although admittedly ExxonMobile stockholders do well.

I look at oil prices like taxes. Something everyone has to pay, and something that's priced into every product we buy. Lower the "tax" and it frees up all kinds of money which does its multiplier effect thing throughout the economy.

So why are the financial news outlets always crying when the price goes down, and happy when it goes up?
Having been in the oil business for 35 years, all I can say is sometimes it's bad when oil prices fall and sometimes it's good. Oil is a commodity and it's price will always fluctuate. When crude oil gets to $25/BBL, buy Exxon. When that happens, the OPEC members will be ready to slit each other's throats.
__________________
Wear Italian, Kiss French, Drink Russian, Drive German
aja8888 is offline   Reply With Quote
Old 11-09-2018, 05:34 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 22,677
Well, this is absolutely nothing like 2015 which had a huge drop in oil prices, so I'm shrugging except I was very pleased to pay $2.19 a gallon when we filled up at Costco yesterday.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 11-09-2018, 05:37 PM   #5
Full time employment: Posting here.
 
Join Date: Nov 2016
Location: Richards
Posts: 935
Hurts a lot of developing countries Nigeria , Venezuala , KAZ Peru Indo. ETC . These countries have some big loans and some of them oil is most of their income . THis might be a way to finally finish Venezuala and get rid of their dictator.
Lots of local drillers and service companies have big debt that could be a drag on banks . They will be drilling like crazy . Try to catch a dime


Real cheap is not good and neither is real high , everyone in the business needs to make a profit and not destroy demand in doing it.
Breedlove is offline   Reply With Quote
Old 11-09-2018, 05:45 PM   #6
Full time employment: Posting here.
Oz investor's Avatar
 
Join Date: Jun 2018
Location: Brisbane
Posts: 763
there are some businesses that have lent or invested a LOT of cash to oil industry businesses , they might like that investment returned sooner rather than never

also the US would like some more export $$$ , higher oil prices would help that
__________________
i hold the Australian listed versions of AU ( Anglo Ashanti ) , BHP , and JHG .

You must learn from the mistakes of others. You can't possibly live long enough to make them all yourself.

Samuel Levenson
Oz investor is offline   Reply With Quote
Old 11-09-2018, 06:16 PM   #7
Full time employment: Posting here.
 
Join Date: Nov 2016
Location: Richards
Posts: 935
I don't think WTI will fall much more then to maybe 55.00 ….No news .
Breedlove is offline   Reply With Quote
Old 11-09-2018, 06:53 PM   #8
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 2,671
I think it’s good to have oil high enough that it is financially sound to produce oil in the U.S. in order to maintain a level of energy independence.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
Jerry1 is online now   Reply With Quote
Old 11-09-2018, 07:29 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2017
Posts: 1,123
Good points all, thanks! Maybe the fundamentals really have changed as we (the US) have shifted to an oil exporting, rather than importing, nation.

Sorry if I still have no sympathy for the oil giants and big lenders when I fill up my tank. But maybe I won't wish for oil prices to go TOO low now.
CaptTom is offline   Reply With Quote
Old 11-09-2018, 07:45 PM   #10
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 10,268
Quote:
Originally Posted by CaptTom View Post
Good points all, thanks! Maybe the fundamentals really have changed as we (the US) have shifted to an oil exporting, rather than importing, nation.

Sorry if I still have no sympathy for the oil giants and big lenders when I fill up my tank. But maybe I won't wish for oil prices to go TOO low now.
We still import about 1/4 of our crude oil needs. We export many products, including diesel fuel, gasoline, natural gas liquids, etc.

What the U.S. producers have done in the last decade is become a threat as to being the "swing producer" in worldwide crude oil production. Our ability to develop horizontal drilling and figure out how to economically get hydrocarbons out of hard shale has given our producers about 2 MM BPD of increased production over the last decade.

Our shale reserves are large and as an example of our ability to bring on crude oil production quickly, we have about 3,600 wells drilled in south Texas that are "not completed" (not fracced) and could be producing in 30 days or so. Similar drill and shut in but not complete strategy is going on in North Dakota.

So it's all good.
__________________
Wear Italian, Kiss French, Drink Russian, Drive German
aja8888 is offline   Reply With Quote
Old 11-09-2018, 08:00 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,149
Quote:
Originally Posted by CaptTom View Post
So why are the financial news outlets always crying when the price goes down, and happy when it goes up?
A drop in oil price often reflects a slowing economy, or one expected to slow, which is bad for equities in general. Airlines might be the industry that benefits the most from lower oil prices, so their stocks often diverge from the general trend.
GrayHare is online now   Reply With Quote
Old 11-09-2018, 08:08 PM   #12
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 10,268
Quote:
Originally Posted by GrayHare View Post
A drop in oil price often reflects a slowing economy, or one expected to slow, which is bad for equities in general. Airlines might be the industry that benefits the most from lower oil prices, so their stocks often diverge from the general trend.
The U.S. industrial companies use a great deal of oil and natural gas. Cheaper fuels (manufacturing) and natural gas feedstocks (plastics production) will lower the operating costs of many businesses. The list is large as to who uses oil and natural gas in this country.
__________________
Wear Italian, Kiss French, Drink Russian, Drive German
aja8888 is offline   Reply With Quote
Old 11-09-2018, 08:34 PM   #13
Thinks s/he gets paid by the post
NYEXPAT's Avatar
 
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,793
There is a fear on Wall Street (justified or not) that lower oil prices could point to a worldwide economic slow down as evidenced by the growing divergence between US markets and most of the rest of world. Obvious exception bieng Brazil which is up strongly since the assassination attempt and ultimate election of "Trump of the Tropics"!
NYEXPAT is offline   Reply With Quote
Old 11-09-2018, 08:57 PM   #14
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 10,268
Quote:
Originally Posted by NYEXPAT View Post
There is a fear on Wall Street (justified or not) that lower oil prices could point to a worldwide economic slow down as evidenced by the growing divergence between US markets and most of the rest of world. Obvious exception bieng Brazil which is up strongly since the assassination attempt and ultimate election of "Trump of the Tropics"!
Did you ever notice that when oil prices drop, the cause is overproduction by OPEC and non-OPEC countries. It happens every time. Once the Big Boys, who depend on oil revenues to run their dictatorships, get a taste of this, steps are quickly taken to get the price back up again. This time it's a little different now that the U.S. can bring on high volume production quickly to take advantage of high prices. We have more leverage, so to say.

The biggest mistake OPEC made in the last few years was to try to run up production (and artificially drop the price of oil) to shut down the U.S. shale guys. OPEC didn't read that right as our oli companies responded by drilling more with lower cost wells and fat budgets.

This time it will be interesting as someone (or maybe more than one) will have to cut production to get the worldwide Brent price over $70 US as that seems to be the comfort zone.

It's a delicate balance with this commodity as many countries are heavily dependent on their oil revenues.
__________________
Wear Italian, Kiss French, Drink Russian, Drive German
aja8888 is offline   Reply With Quote
Old 11-09-2018, 09:03 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 25,113
Quote:
Originally Posted by GrayHare View Post
A drop in oil price often reflects a slowing economy, or one expected to slow, which is bad for equities in general...
Quote:
Originally Posted by NYEXPAT View Post
There is a fear on Wall Street (justified or not) that lower oil prices could point to a worldwide economic slow down as evidenced by the growing divergence between US markets and most of the rest of world...
Quote:
Originally Posted by aja8888 View Post
Did you ever notice that when oil prices drop, the cause is overproduction by OPEC and non-OPEC countries...
Yes. If the price drop is due to oversupply, it is not bad. If it is due to demand dropping (global economy slow down), it is not good.

So, what is it? Anybody has any number?
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 11-09-2018, 09:09 PM   #16
Thinks s/he gets paid by the post
NYEXPAT's Avatar
 
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,793
Quote:
Originally Posted by aja8888 View Post
Did you ever notice that when oil prices drop, the cause is overproduction by OPEC and non-OPEC countries. It happens every time. Once the Big Boys, who depend on oil revenues to run their dictatorships, get a taste of this, steps are quickly taken to get the price back up again. This time it's a little different now that the U.S. can bring on high volume production quickly to take advantage of high prices. We have more leverage, so to say.

The biggest mistake OPEC made in the last few years was to try to run up production (and artificially drop the price of oil) to shut down the U.S. shale guys. OPEC didn't read that right as our oli companies responded by drilling more with lower cost wells and fat budgets.

This time it will be interesting as someone (or maybe more than one) will have to cut production to get the worldwide Brent price over $70 US as that seems to be the comfort zone.

It's a delicate balance with this commodity as many countries are heavily dependent on their oil revenues.
I am not disagreeing with your post. I just do not understand what it has to do with what I posted? My post was in reference to stock markets around the world and the extreme divergences we have seen this year.
NYEXPAT is offline   Reply With Quote
Old 11-09-2018, 09:50 PM   #17
Recycles dryer sheets
Popeye's Avatar
 
Join Date: Sep 2016
Posts: 154
Quote:
Originally Posted by NW-Bound View Post
Yes. If the price drop is due to oversupply, it is not bad. If it is due to demand dropping (global economy slow down), it is not good.

So, what is it? Anybody has any number?
https://www.iea.org/oilmarketreport/omrpublic/

Check out this page for global demand. They discuss supply as well. Lots of variables so draw your own conclusions.
Popeye is offline   Reply With Quote
Old 11-10-2018, 05:21 AM   #18
Recycles dryer sheets
 
Join Date: Jul 2018
Posts: 60
A large part of my networth (60%) is denominated in Indian rupees. So lower oil prices is good for me. If oil crosses 80, it will be disastrous. Brent at 60 is like perfect.
revhappy is offline   Reply With Quote
Old 11-10-2018, 06:01 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Nov 2016
Posts: 2,594
I have worked with the oil industry companies for many years when I was working. I have yet to trust any of the big boys in the industry. Oil business is a crooked business lying, cheating and stealing under the table type of business.


US drillers blame everything on OPEC but are as much or more to blame for the problems in the industry. Oil companies have the US Gov. right by the shorts.
street is offline   Reply With Quote
Old 11-10-2018, 09:00 AM   #20
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 548
in 2017, the top 25 oil and gas companies on the Global 2000 generated $2.2 trillion in sales and pocketed $73 billion in profit. 3.3% ROS is not a good. The biggest company, XOM is king of the hill with $237B in 2017 revenue and $19.7B profit, or 8.3% ROS. That's better, but not stellar. Very capital intensive operations so their ROIC is also not the best.

Still, I don't mind lower oil prices vs. higher. Forces big oil to find efficiencies.
__________________

corn18 is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


» Quick Links

 
All times are GMT -6. The time now is 02:54 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.