Russia drags down the world economy - Oil prices fall by 20% - Final nail in the coffin?

[Logosone]

Following an announcement by the Russians it is clear that OPEC and Russia could not agree on measures to keep the oil price stable. On the contrary they are now in an open price war and the price of oil is in free fall, down 20% as of this morning.

 

Australian stocks led a plunge in early Monday trading in the Asia-Pacific region, falling 5.9 percent. Tokyo shares fell 4.7 percent, and Hong Kong opened 4.1 percent lower. Futures markets indicated big losses for Wall Street and Europe when they open later on Monday.

https://www.nytimes.com/2020/03/08/business/saudi-arabia-oil-prices.html

 

But this is only the start as New York and London will open later today epic falls are forecast.

 

Is this the final nail in the coffin for the world economy or a silver lining, in that the cheap oil will benefit the Chinese economy? What will happen to your economy?

 

Thoughts please.

[worgeordie]

Cheap oil should be a bonus for the World,

as I know when the price goes up,so does

most other things, coming down when oil

is cheaper,does not happen as it should or

as quickly.

regards Worgeordie

[Logosone]

In the short term this should be good news for China. So the Chinese economy should benefit. But how the US replies could determine the future. Here's Bloomberg's take:

 

“Investors will not focus on global stimulus measures, a potential ramp in production from China, the healthy U.S. consumer, aggressive Fed easing, and relatively attractive U.S equities, until they have confidence that the U.S. government and Fed will ‘do what it takes’ to lower tail risk,” Dennis Debusschere, head of portfolio strategy at Evercore ISI, wrote in a note to clients Sunday. “If that happens, the focus will turn to how the outbreak has evolved in China and if the U.S. is on a similar path.”

 

https://finance.yahoo.com/news/correction-deepens-u-stock-futures-220508907.html

[bkk6060]

The US economy has been in good shape for awhile.

This now is all a very good thing for some.

Home interest rates are just above 3%.  The lowest ever.  A 15 year mortgage under 3.

Unbelievable.

And, the stock market downturn is the correction which has been long over due.

 

I personally have been nibbling at some stocks with dry powder cash.

Hope to buy more this week.

The people who are or will panic, are going to regret it.

Great buying opportunity!

 

[Logosone]

That's for sure, if you wait till the Wall Street and London openings the falls will be epic and it will be a perfect time to buy shares.

 

But whilst the US economy has been on a nice uptrend, we have recently had an indicator that not all is well, the services PMI figure contracted for the first time in 4 years:

 

"Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders. “Total new orders fell for the first time in over a decade. The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year. “The survey data are consistent with GDP growth slowing from just above 2% in January to a crawl of just 0.6% in February. However, the February survey also saw a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove shortlived.”

 

https://www.markiteconomics.com/Public/Home/PressRelease/2ea84928c5d74262bbe387ec2b19d337

 

The recent rate cut obviously showed that the Fed is concerned about the US economy and that not all is well.

 

Hopefully the resilience of the Americans is real and this will only be a short-lived downturn.

 

And not the arrival of one of the four horsemen of the Apocalypse.

 

 

Edited March 9, 2020 by Logosone

[Mavideol]

44 minutes ago, Logosone said:

in that the cheap oil will benefit the Chinese economy?

don't forget Vlad is Xi's best friend and here is the proof....... Vlad slogan MRGA

[Kwasaki]

44 minutes ago, Logosone said:

Is this the final nail in the coffin for the world economy or a silver lining, in that the cheap oil will benefit the Chinese economy? What will happen to your economy?

 

Thoughts please.

My only thoughts are what's wrong with Chinese benefiting.

My economy will be better with cheaper fuel at the pump.

[NCC1701A]

21 minutes ago, bkk6060 said:

The people who are or will panic, are going to regret it.

Great buying opportunity!

sometime between now and the end of the year, and i hope after the election, there will be a "blood in the streets" capitulation.

that is the time to jump in.

 

also a good time to see first hand in real time the relation of the stock markets, gold, bitcoin, oil and currencies.

 

no doubt the Thai baht will soar to new highs. ????

 

 

[poohy]

40 minutes ago, worgeordie said:

Cheap oil should be a bonus for the World,

as I know when the price goes up,so does

most other things, coming down when oil

is cheaper,does not happen as it should or

as quickly.

regards Worgeordie

Bonus ?!

Not when you have oil shares

[Logosone]

China and Russia are close, but what is Russia's real agenda here?

 

This comes against a backdrop of US oil producers flooding the market, and thereby depressing oil prices. So this way Putin can hit back at the US by taking out the US shale oil producers who will be the first to fall by the wayside because they need oil prices above 50$ to make money, given their costs.

 

So my best guess, the Russians did not want to take huge cuts and believe they can live with the lower prices, that that is preferable to cuts, and as a nice side play they take out US shale oil producers?

 

https://foreignpolicy.com/2020/03/06/russias-defiance-sets-the-stage-for-oil-price-bloodbath/

[Logosone]

10 minutes ago, Kwasaki said:

My only thoughts are what's wrong with Chinese benefiting.

My economy will be better with cheaper fuel at the pump.

Nothing wrong with cheap oil helping China. 

 

The question is will it be enough to create stability and growth in the world economy? China again approaching good growth will not be enough. The world is looking to the US, and the Fed. They will have to lower rates to  boost the world economy. So will many other federal banks, that still have interest rate room to cut.

 

Cheap fuel at the pump would be useless if the pump operators go bust after all. We need a stable economy and growth.

[CGW]

21 minutes ago, poohy said:

Not when you have oil shares

Or work in the O&G industry ???? 

I have always loved high gas prices, meant I was able to earn a living!

[spidermike007]

Somehow I doubt that there will be much in the way of sympathy, for most of the Arab oil producers, nor for Russia. None of them are what I would refer to as "good citizens". They have not done much good with their wealth. And they have sowed major discord, especially the heinous Saudi regime, the nasty Emirates regime, and of course Dictator Putin. MBS, Sheikh Maktoum, and Putin are always up to no good. That is just who they are. 

[GalaxyMan]

22 minutes ago, Logosone said:

China and Russia are close, but what is Russia's real agenda here?

 

This comes against a backdrop of US oil producers flooding the market, and thereby depressing oil prices. So this way Putin can hit back at the US by taking out the US shale oil producers who will be the first to fall by the wayside because they need oil prices above 50$ to make money, given their costs.

 

So my best guess, the Russians did not want to take huge cuts and believe they can live with the lower prices, that that is preferable to cuts, and as a nice side play they take out US shale oil producers?

 

https://foreignpolicy.com/2020/03/06/russias-defiance-sets-the-stage-for-oil-price-bloodbath/

I think that with Russia's GDP being 60% oil & gas, they cannot withstand any prolonged price drop as well as the US will be able to. This is going to seriously screw them. The only ones who will really benefit country-wise are the Chinese. And all consumers of anything, as prices will come down.

[ExpatOilWorker]

Oil was already cheap at $50. 

$35 oil will only marginally benefit China and the rest of the global economy, but it will devastate the oil industry and industry that historically also pay high dividends and benefits pension funds.

 

Putin was not happy about the Nord Stream II embargo, but it is hard to see the logic in his strategy this time.

For now it looks like both Putin and MBS will lose financially, politically and eventually face and credibility. Time will tell.

 

[GalaxyMan]

2 minutes ago, ExpatOilWorker said:

For now it looks like both Putin and MBS will lose financially, politically and eventually face and credibility. Time will tell.

We can only hope! ????

[ChouDoufu]

i don't understand the thread title?  russia did it?

 

there was an opec+ meeting at which there was no agreement on production cuts.  in response, saudi decided to increase production and drastically cut prices.

[mistral53]

24 minutes ago, Logosone said:

China and Russia are close, but what is Russia's real agenda here?

 

This comes against a backdrop of US oil producers flooding the market, and thereby depressing oil prices. So this way Putin can hit back at the US by taking out the US shale oil producers who will be the first to fall by the wayside because they need oil prices above 50$ to make money, given their costs.

 

So my best guess, the Russians did not want to take huge cuts and believe they can live with the lower prices, that that is preferable to cuts, and as a nice side play they take out US shale oil producers?

 

https://foreignpolicy.com/2020/03/06/russias-defiance-sets-the-stage-for-oil-price-bloodbath/

I would agree with the gist of this - as they say, pay back is a bitch!

The US tries to stymie the Russian economy by torpedoing Nordstream II - now the US economy will suffer far greater losses when the shale miracle collapses and the over leveraged debt comes due. Putin waited for the right moment to stuck a knife in to that carcass. Possibly push over the SA monarchy would be another overdue benefit.

 

Just for giggles - was it really Russia alone that was solely responsible that OPEC + could not agree on production cuts? Last time I was in a negotiation there was more than one party involved, but I am sure that is just inconvenient semantics.........

[Logosone]

11 minutes ago, spidermike007 said:

Somehow I doubt that there will be much in the way of sympathy, for most of the Arab oil producers, nor for Russia. None of them are what I would refer to as "good citizens". They have not done much good with their wealth. And they have sowed major discord, especially the heinous Saudi regime, the nasty Emirates regime, and of course Dictator Putin. MBS, Sheikh Maktoum, and Putin are always up to no good. That is just who they are. 

 

Well, what about the US? 

 

The US is the biggest producer of oil in the world.

 

According to the American Petroleum Institute, the oil and natural gas industry supports nine million U.S. jobs and makes up seven percent of the nation's gross domestic product.

 

https://en.wikipedia.org/wiki/Petroleum_in_the_United_States

 

That's about the same as the City of London contributes to the UK economy, seven percent.

 

As the biggest oil producer, will the US not take a massive hit here?

[Berkshire]

31 minutes ago, Logosone said:

China and Russia are close, but what is Russia's real agenda here?

 

This comes against a backdrop of US oil producers flooding the market, and thereby depressing oil prices. So this way Putin can hit back at the US by taking out the US shale oil producers who will be the first to fall by the wayside because they need oil prices above 50$ to make money, given their costs.

 

So my best guess, the Russians did not want to take huge cuts and believe they can live with the lower prices, that that is preferable to cuts, and as a nice side play they take out US shale oil producers?

 

https://foreignpolicy.com/2020/03/06/russias-defiance-sets-the-stage-for-oil-price-bloodbath/

Agree that Putin has had a hard-on for the US and its shale oil industry.  But the Russian economy is going to get hammered if oil prices stay below $30.  About the only oil producer who can withstand a prolonged price war is Saudi Arabia.  Anyone still think Trump has a "wonderful" relationship with Putin and MBS?  You'd think Trump would step in and do something if he did.  But Trump has zero sway with either.

 

As for other countries/industry benefiting?  Of course China would benefit, along with the transportation industry.  But both are getting decimated by COVID, so it's a wash.  The US stock market is going to go crazy tonight, with wild swings in both directions....but end up down.

[Logosone]

7 minutes ago, ChouDoufu said:

i don't understand the thread title?  russia did it?

 

there was an opec+ meeting at which there was no agreement on production cuts.  in response, saudi decided to increase production and drastically cut prices.

That's true, but the Russians would have been well aware of this, that the Saudis would be free to produce oil at wll, and price it at will. If the Russians aim to survive based on volume, obviously the Saudis would have done the same. 

 

It seems clear to me that if Russia had AGREED to lower production then the Saudis were prepared to do so themselves, and this could have caused stability.

 

Guess the Russians disagreed. The cuts were to deep for them and they figured they can live off volume and if prices are lower, so be it.

 

But it's a legitimate question, who's to blame here, the Russians for not agreeing or the Saudis for taking extreme action? Either way people will suffer here.

[Logosone]

6 minutes ago, Berkshire said:

Agree that Putin has had a hard-on for the US and its shale oil industry.  But the Russian economy is going to get hammered if oil prices stay below $30.  About the only oil producer who can withstand a prolonged price war is Saudi Arabia.  Anyone still think Trump has a "wonderful" relationship with Putin and MBS?  You'd think Trump would step in and do something if he did.  But Trump has zero sway with either.

 

As for other countries/industry benefiting?  Of course China would benefit, along with the transportation industry.  But both are getting decimated by COVID, so it's a wash.  The US stock market is going to go crazy tonight, with wild swings in both directions....but end up down.

 

I would agree, Trump must be hating this. The US is the largest oil prodcuer, with a much higher cost outlay. Nine million jobs depend on US oil prices in America.

 

This is terrible news for 9 million Americans. Not to mention the billions that will be wiped off share prices in the US in a few hours.

[ChouDoufu]

5 minutes ago, Logosone said:

 

Well, what about the US? 

 

The US is the biggest producer of oil in the world.

 

According to the American Petroleum Institute, the oil and natural gas industry supports nine million U.S. jobs and makes up seven percent of the nation's gross domestic product.

 

https://en.wikipedia.org/wiki/Petroleum_in_the_United_States

 

That's about the same as the City of London contributes to the UK economy, seven percent.

 

As the biggest oil producer, will the US not take a massive hit here?

consider those fracking companies barely managing to survive now.  with oil under $30 for any extended period, they're bankrupt.

that's just the beginning, as most will be unable to make their bond payments.

with interest rates for us mortals essentially zero, too many are heavily invested in high yield bonds for income stream.

 

[mistral53]

1 hour ago, bkk6060 said:

The US economy has been in good shape for awhile.

This now is all a very good thing for some.

Home interest rates are just above 3%.  The lowest ever.  A 15 year mortgage under 3.

Unbelievable.

And, the stock market downturn is the correction which has been long over due.

 

I personally have been nibbling at some stocks with dry powder cash.

Hope to buy more this week.

The people who are or will panic, are going to regret it.

Great buying opportunity!

 

I always chuckle when I read the make-believe comment about how good the US economy is doing - around 2,5% GDP growth vs. a 5% increase in debt in my simple math puts the actual GDP into a contraction of 2,5%.

Good shape? there is not enough lipstick in this world to make that pig into a pageant.........  ????

[Logosone]

3 minutes ago, mistral53 said:

I always chuckle when I read the make-believe comment about how good the US economy is doing - around 2,5% GDP growth vs. a 5% increase in debt in my simple math puts the actual GDP into a contraction of 2,5%.

Good shape? there is not enough lipstick in this world to make that pig into a pageant.........  ????

 

The US Dollar has been on tearaway upslide, but this has well and truly come to an end. The PMI figures in February were a clear warning.

 

The US economy is officially in war time conditions now:

 

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders. “Total new orders fell for the first time in over a decade. The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year. “The survey data are consistent with GDP growth slowing from just above 2% in January to a crawl of just 0.6% in February. However, the February survey also saw a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove shortlived.”

 

https://www.markiteconomics.com/Public/Home/PressRelease/2ea84928c5d74262bbe387ec2b19d337

 

The Fed did not cut rates for nothigng, obviously there is concern.

 

Still, they are the only big boy left. The US will have to muscle the world economy out of this mess. Hopefully the US downturn is shortlived.

[from the home of CC]

my hope is that Saudi won't be able to keep up its nanny state commitments and as its people suffer they rebel and overthrow the murderous vermin that had them addicted to handouts.. 

Edited March 9, 2020 by from the home of CC

[Logosone]

Unfortunately it looks like the Saudis are amongst the best placed to play the volume game and for the longest time. Hence their cuts were the most aggressive.

 

Though Russia must also be ready to live with low oil prices for a long time, because killing off the US share oil producers will take some time.

[bobbin]

Don't count on the Fed to make a significant impact..

 

Larry Summers, former Wall Street honcho and former Treasury Secretary was interviewed on Bloomberg a couple of days ago. He said that the Fed made a boo boo by lowering rates 50 basis point too soon, considering they only had 150 basis points to provide ammunition. Now they are at .75% and things are just starting to heat up. Apparently the Market is of the same opinion.

[Logosone]

10 minutes ago, bobbin said:

Don't count on the Fed to make a significant impact..

 

Larry Summers, former Wall Street honcho and former Treasury Secretary was interviewed on Bloomberg a couple of days ago. He said that the Fed made a boo boo by lowering rates 50 basis point too soon, considering they only had 150 basis points to provide ammunition. Now they are at .75% and things are just starting to heat up. Apparently the Market is of the same opinion.

 

Yeah, it's a real problem, many banks have negative interest rates or 0, so they have no room to maneuvre at all. The 50 basis point cut of the Canadians also shocked the market.

 

To be fair this additional shock was hard to foresee. Who'd have thought the Russians would shoot themselves in the foot by accepting low oil prices for years? 

 

Then again some did foresee it. I just regret I didn't read that foreignpolicy article I posted above, which clearly predicted the oil price bloodbath three days ago,  I could have made a killing shorting the Canadian Dollar.

Edited March 9, 2020 by Logosone

[soalbundy]

30 minutes ago, Logosone said:

 

I would agree, Trump must be hating this. The US is the largest oil prodcuer, with a much higher cost outlay. Nine million jobs depend on US oil prices in America.

 

This is terrible news for 9 million Americans. Not to mention the billions that will be wiped off share prices in the US in a few hours.

covfefe