Understanding Oil Prices

[aja8888]

Quote:

Originally Posted by Fermion Great. So our trade deficit becomes even larger as we import more Chinese goods for our superstores and import more oil because it is cheaper to import than produce ourselves. If you play the very long game, I don't see how that is a positive for the USA.

I agree.

[audreyh1]

I don't think the shale oil industry is a big enough part of the US GDP to cause a great deal of harm. I don't believe it will "collapse" either, just slow down quite a bit. Yes, we will lose some jobs there, but we may gain jobs in another places as a result of lower oil prices benefitting other industries. A shock of this nature always has ripples, but I believe they will eventually settle.

[REWahoo]

Quote:

Originally Posted by Fermion ...import more oil because it is cheaper to import than produce ourselves. If you play the very long game, I don't see how that is a positive for the USA.

Any merit to saving our petroleum resources and using up the other guy's first?

[dallas27]

Quote:

Originally Posted by Running_Man This oil decline is a highly deflationary move to the economies of the world and the idea that this is stimulative seems incredulous to me how many people truly believe oil declines are good for the economy. A 1.3 trillion dollar per year revenue stream is being taken away at present prices, with oil valuations of earning assets being priced at 3X EBITDA this means an additional decline of 5 trillion in the value of the assets producing the world's oil, whether those are junk financed assets or AAA assets.

Lower prices on any commodity are ultimately positive for society. When prices>production cost, that means the producer is restricting supply and maximizing profit at expense of the consumer. "Social Surplus" is NOT maximized.

Yes the companies margins are higher (becuase they have market power and are influencing the market at the expense of the consumer), but consumers are not getting as much product as they can use.

As we push the price closer to the equilibrium of supply and demand, social surplus increases. Yes the oil companies run tight on profit, but society overall gains, from a basic microeconomic viewpoint.

In real life, change hurts, so this is a messy transistion (or even temporary), not a simple set of line equations. If lower prices do stick around, there will be winners and loser, but overal, mankind benefits. (I'm ignoring all pollution externalities, that's another conversation)

[Chuckanut]

What I find fascinating is the number of people who think lower oil and energy prices are going to hurt the economy. Certainly, there will be winners and losers. But overall, I expect far more winners than losers.

This should be a huge boost for our economy and may even help get our anemic recovery up to speed.

[dallas27]

I think what we can all agree on is STABILITY is best for business. High or low prices, uncertainty stalls progress/investment.

[Lsbcal]

Quote:

Originally Posted by Chuckanut What I find fascinating is the number of people who think lower oil and energy prices are going to hurt the economy. Certainly, there will be winners and losers. But overall, I expect far more winners than losers. This should be a huge boost for our economy and may even help get our anemic recovery up to speed.

Maybe the ones who will be disproportionately hurt will loose jobs or large dollar investments. They are the ones who are most exposed to the energy industry. Their stories might be played up in the press a bit more.

For each one of these there are many more who will have a few bucks more for spending. I don't know what that ratio is, but it's probably more then 10:1.

[Brat]

Here is my take: the price of oil is purely a supply and demand issue. Right now the suppliers are willing to produce notwithstanding the fact that lower demand is driving the price down, precipitously. Who am I to understand the production why.. it just is.

What will be the impact of this precipitous price drop? Russia and Iran, perhaps ISiS, depend on oil revenues. They will see significantly less income which might contribute to political instability/deal making. In North America many new producers will be in a price squeeze... loans based on higher prices are in jeopardy as is the exploration infrastructure. [reflect for a moment on the big bank deal just cut in the funding legislation. Think they saw that coming?]

Refiners, to the extent that they don't have a lot of contracts based on old crude costs, will do fine. Consumers will be happy. Natural gas prices are lower but most utilities have existing contract rates so the consumer won't see a drop in the near term but natural gas utilities will keep the spread.

Messy fall out: Russia from a political, not global economic POV; higher yield bonds in the US. The rest, in the US, will be a difficult shakeout in oil service companies.

My $0.02.

[explanade]

Gov. Cuomo bans fracking in NY state due to health concerns.

Some economically depressed communities in the state had been pushing for it, so that they could reap the economic benefits.

But Cuomo had faced challenges from the more liberal part of his party over the issue:

http://www.nytimes.com/2014/12/18/ny...isks.html?_r=0

[aja8888]

Quote:

Originally Posted by explanade Gov. Cuomo bans fracking in NY state due to health concerns. Some economically depressed communities in the state had been pushing for it, so that they could reap the economic benefits. But Cuomo had faced challenges from the more liberal part of his party over the issue: http://www.nytimes.com/2014/12/18/ny...isks.html?_r=0

Reading the above article doesn't specify or provide a link to the the testing data that has confirmed health concerns? Am I missing something here?

[explanade]

I think it's mostly about the political aspect.

Sounds like their health dept. issued a separate report.

Guessed the telling thing is, would you want to live where fracking is occurring. Some NY residents in the area near the PA border stood to make over a million from fracking rights, while 3 miles across the border, some people made out well.

[ERD50]

Quote:

Originally Posted by aja8888 Reading the above article doesn't specify or provide a link to the the testing data that has confirmed health concerns? Am I missing something here?

Maybe they updated it, I saw this link:

http://www.nytimes.com/interactive/2...ng-report.html

Haven't read it yet, so can't comment on content, but I thought this was interesting wording:

Quote:

The Cuomo administration decided to ban hydraulic fracturing after concluding that the method posed inestimable public-health risks. DEC. 17, 2014.

inestimable? They can't estimate the risks? Hmmmm.

-ERD50

[aja8888]

Gosh, pages 11 & 12 (Conclusions) really tell the story on the quantified risks. I can't copy it so you will have to read it online.

I've done oil & gas work all over western NY and also northern PA and western Ohio. NY only has stripper wells in most western areas that are near end of life. No real need to do anymore drilling there as the communities are small and do count for many votes in NY.

On the other hand, Ohio is going gangbusters with production in the Utica Shale. No complaints there and lots of new gas and jobs.

BTW, these plays are mostly gas and very little oil.

[imoldernu]

A different view:

In September, Kerry visits the Saudi's...
The win-win scenario:
Saudi's worried about their neighbors Syria and Iran...
Saudi's have virtually unlimited oil..
Russia cozy with Iran and Syria.
US worried about a China collapse.
Saudi's sell oil below market $50 to China.
This destroys Russia and Iran economy.
Stops the Iran bomb threat
Gives China a lifeline.
US wins!

[Brat]

Works for me.

[explanade]

Quote:

Originally Posted by aja8888 Gosh, pages 11 & 12 (Conclusions) really tell the story on the quantified risks. I can't copy it so you will have to read it online. I've done oil & gas work all over western NY and also northern PA and western Ohio. NY only has stripper wells in most western areas that are near end of life. No real need to do anymore drilling there as the communities are small and do count for many votes in NY. On the other hand, Ohio is going gangbusters with production in the Utica Shale. No complaints there and lots of new gas and jobs. BTW, these plays are mostly gas and very little oil.

But the bottom line is, would you consider buying property which is near fracking activities?

The concerns are about water contamination and seismic instability.

[Lakewood90712]

Quote:

Originally Posted by imoldernu A different view: In September, Kerry visits the Saudi's... The win-win scenario: Saudi's worried about their neighbors Syria and Iran... Saudi's have virtually unlimited oil.. Russia cozy with Iran and Syria. US worried about a China collapse. Saudi's sell oil below market $50 to China. This destroys Russia and Iran economy. Stops the Iran bomb threat Gives China a lifeline. US wins!

You forgot North Korea and Sony Pictures on the list

[ERD50]

Quote:

Originally Posted by explanade But the bottom line is, would you consider buying property which is near fracking activities? The concerns are about water contamination and seismic instability.

They are concerns, yes - but are they reasonable concerns? I don't know enough to have an opinion one way or the other, but I know that lots of people are concerned about things that are not worth being concerned about. And that just distracts from the stuff they should be concerned about.

-ERD50

[explanade]

Unless you get mineral rights, it might at least be like buying property which is near constant construction activities, even if you don't have water table problems.

The executives of those fracking companies probably aren't buying residential properties in those areas.

[aja8888]

Quote:

Originally Posted by explanade Unless you get mineral rights, it might at least be like buying property which is near constant construction activities, even if you don't have water table problems. The executives of those fracking companies probably aren't buying residential properties in those areas.

Let me tell you otherwise, the execs of the oil and gas companies are dying to get their hands on leases where drilling is going to occur.

Most modern wells are not near residential areas and you only break the formation once, then the well flows back. Once the reservoir pressure is equalized (over time and variable), the well is put on a pump system (if it's oil).

And many people are very happy to have wells near them or on their property, especially if it's just farmland or ranch land. Even if you don't have mineral rights (which could produce an income stream of several hundred thousand dollars to millions), you end up leasing the surface rights for a good fee.

It's not all bad.

I've seen monthly royalty checks to farmers that were over $100,000. Pretty much most of rural Fort Worth residents are now millionaires from the Barnett gas wells.