Cheap oil buoys consumers, shakes up global governments

[webfact]

Cheap oil buoys consumers, shakes up global governments
By The Associated Press

Cheap oil will be sticking around for a while

NEW YORK -- That reality is wreaking havoc and causing uncertainty for some governments and businesses, while creating financial windfalls for others. Less expensive crude is delighting consumers in some regions, while leading to widespread job losses elsewhere.

Oil has fallen from $107 to below $30 in the past 19 months. Furious production by the U.S. and OPEC led to an oversupply. Recently, a sluggish global economy has spurred concerns about demand.

A recovery in oil prices depends on when supply and demand can get close to equilibrium. It could be a rocky ride. In a recent research note, Goldman Sachs predicted "the path to a rebalanced market will be protracted and arduous."

The U.S. government forecasts Brent crude, the international benchmark, will average $40 a barrel this year. Bank of America Merrill Lynch is a bit higher, at $46.

NORTH AMERICA

U.S. households have saved hundreds of dollars on gasoline and heating oil. That's money they can spend in other areas of the economy. Businesses such as airlines that burn large amounts of fuel have reaped savings in the billions. But energy company profits have plunged, as have their stocks. Layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending. Meanwhile, states like Alaska and North Dakota need to plug big budget gaps. The Energy Department expects a decline in U.S. oil production, but says oil will only average $38 this year.

For new mines in Alberta's oil sands to cover costs, oil needs to be $85 to $95 a barrel, according to IHS Global Insight. Western Canadian Select oil sands crude recently traded around $15. Canadian oil companies have slashed budgets, laid off tens of thousands of workers and cut dividends. A Bank of Canada report says companies see dramatic change for the global industry, with weaker companies restructuring or exiting the oil business, while healthier companies buy distressed assets. Canada's dollar is down 20 percent versus its U.S. counterpart. Prices for imported groceries have risen and Canadians are reconsidering a U.S. vacation.

Mexico is better insulated nowadays from an oil collapse. Oil accounts for 20 percent on national revenue, compared with 40 percent up until 2012. However, the country has postponed or canceled some oil projects, and delayed auctions for deep water exploration and production oil contracts, as part of its historic energy reform.

— David Koenig, Dallas; Rob Gillies, Toronto; Eduardo Castillo, Mexico City.

MIDEAST

Saudi Arabia and Iraq have been furiously pumping oil, per OPEC's decision to maintain robust production. Their hope is that the 12-year lows in crude prices will push more expensive producers, such as U.S. shale drillers, out of the market. OPEC's production rose by an average 1 million barrels a day in 2015. Now Iran, free of Western sanctions, plans to boost production by 500,000 barrels a day. Saudi Arabia cut back on some fuel subsidies and anticipates an $87 billion budget shortfall this year. It's dipping into reserves to finance a war in Yemen. An initial public offering of at least a part of the giant state-run Saudi Arabian Oil Co. is under consideration. Iraq diverted money from construction projects to fund a costly war against the Islamic State. Baghdad also started discussions with international oil companies operating in the oil-rich south to revisit the terms of their service contracts. Iran's economy was slowed by the sanctions over its contested nuclear program. While sanctions relief has been slow to reach the average Iranian, the country is aggressively moving forward with business deals.

—Jon Gambrell, Dubai, United Arab Emirates; Sinan Salaheddin, Baghdad, Iraq

ASIA

China's economy grew by 6.9 percent in 2015, the country's slowest rate in 25 years, raising concerns about global economic strength and contributing to the oil price decline. Still, China's economy is hardly collapsing. The International Energy Agency predicts oil consumption in China will grow 3.4 percent this year, down from 6 percent in 2015. With a growing emphasis on the services sector, China should see less oil demand from heavy industry and construction. That will likely be offset by growing car ownership and more demand for petrochemicals. China is the world's fifth-biggest oil producer, but financially strapped state-owned oil companies are likely to cut production. For most of Asia, plunging oil prices have alleviated heavy costs for imported oil and gas. For exporting nations, low oil helps and hurts. Auto exports to countries like the U.S. are profitable. But countries such as Brazil and Russia are tightening their belts after splurging on consumer goods from Asia when commodity prices soared. In Japan, consumers are paying less for energy, but lower energy prices are hindering the government's battle against deflation.

— Elaine Kurtenbach, Tokyo; Joe McDonald, Beijing.

EUROPE

Low oil prices are a boost to the European economy, which is a net importer of oil and gas. It helps consumers in two ways: by making fuel cheaper and lowering the cost of making goods. That lower cost feeds through to help bring down consumer prices in shops. Analysts at Capital Economics say lower oil prices boosted GDP in the 19-country union by about 1 percentage point last year. That's significant, considering the European Central Bank forecasts the eurozone economy grew 1.5 percent in 2015. However, the low prices hinder the European Central Bank's effort to get inflation back up toward to around 2 percent. Some fear that a prolonged period of low inflation can encourage consumers to put off spending in the knowledge that goods won't get more expensive.

— Carlo Piovano, London; David McHugh, Frankfurt, Germany

RUSSIA

Russia's economy shrank by 3.7 percent last year, its worst contraction since 2009. Oil and gas together contribute about half of state revenues. The government now anticipates cuts to the budget for fiscal 2016, which is based on an oil price of $50 per barrel. Poorer Russians are already feeling the squeeze from falling wages and last year's rapid rise in food prices, driven by Russia's "anti-sanctions" ban on Western food. There is government talk of partly privatizing state companies, but powerful state corporation bosses likely would object. Meanwhile, costly plans to drill in the Arctic, once a source of pride for the Russian government, are on ice. Even so, Russian oil production hit a post-Soviet high of 11.1 million barrels a day in 2015, according to the International Energy Agency, which expects production to tail off somewhat as 2016 proceeds.

— James Ellingworth, Moscow

LATIN AMERICA

Across Latin America, drilling projects are being shelved and governments are slashing spending. The IMF is predicting a second straight annual contraction in the region's economies. The last time growth was negative for two straight years was in the debt crisis of the 1980s, which was partly fueled by an oil bust. Venezuela is the nation hardest hit. The government earns 95 percent of its export income from oil — and its economy was already unraveling before the plunge in oil prices. Long lines for food and other scarce goods are commonplace. In Colombia, oil income is expected to be practically nil in 2016. For smaller countries in Central America and the Caribbean that import oil, the lower prices are a relief.

— Joshua Goodman, Bogota, Colombia

AFRICA

These are sobering times for Africa's two biggest oil producers. Oil previously provided 80 percent of government revenue in Nigeria and 70 percent in Angola. Nigeria's 2016 budget is double that of 2015 and based on $38 oil, so the government plans to borrow heavily. Angola's budget is based on a price of $40, down from an earlier benchmark of $81. Both countries' currencies have plunged against the dollar. The depreciation has resulted in higher food prices. Now both countries are trying to diversify their economies. Nigeria's government has vowed to focus more on agriculture, mining and massive infrastructure developments to create jobs. The two countries will reap some savings by cutting fuel subsidies.

— Michelle Faul, Lagos, Nigeria; Lynsey Chutel, Johannesburg


-- (c) Associated Press 2016-02-03

[GOLDBUGGY]

OPEC - The Organization of Petroleum Exporting Countries, where only one voice seems to be heard these days. Which is the voice of Saudi Arabia's. Wouldn't that be a bit like having the United Nations, where the only one who can speak is the USA? Nonsense! This whole Oil Strategy of flooding the world with extra oil was stupid and without thought or merit. This has caused havoc in almost every country of the world including the major Oil Importing Countries.

The Saudis claim they want there Market Share back. Where did they ever claim they lost that first? With Oil Prices above $100 / bbl surely this indicates there is an Oil Shortage, and therefore they would have no trouble selling there Oil at this price. Or to them does Market Share mean all the Oil they can produce? Let me ask you what makes more sense. To sell 9 Million Barrels of Oil for $100 / bbl or to sell 10.5 Million barrels of Oil for $30 / bbl? Anyone with Grade 6 Math can give you the correct answer to this question.

The Saudis claim they want the Oil Markets to balance naturally by the Law of Economics, which is Supply and Demand. Surely the quickest and easiest way to unbalance any market is for the government to stick there nose in it and try to change things, which over time would have balanced itself out. In which Saudi Arabia did by over producing.

The Saudis claim that Oil Fracking in the USA was a threat to them. How so? How can Oil Fracking, which at that time cost about $70-$80 to produce one barrel of Oil be a threat to a company who can produce this same Oil for $10 a barrel?That is like claiming that a guy with a BB Gun is a threat to you when you are holding a Bazooka. Had the Saudis stayed out of this and the USA was over producing with Frack Oil, the Law of Economics would have taken hold. The Over supply would have dropped the price of Oil down to the $70-$80 mark, where it was no long profitable for Oil Fracking and the market would have held there.

Even if the Saudis were successful in this plan to knock out the Oil Fracking Industry out of business in the USA, how long would they be successful in doing that? Due to new technology this Fracked Oil became a new source of recoverable Oil and Resources. That is not going to go away. This Oil is not going to disappear out of the ground! It will still be there when the price of Oil climbs again. All the Saudis have been able to accomplish so far, after 18 months of low Oil Prices, is to make these companies more efficient. To cut there costs from $70-$80 / bbl. to now $50-$60 / bbl. Still to high for Oil Production now, but like I said, they aren't going far away.

I agree that perhaps $100 / bbl of Oil is too high but you have to keep in mind that the cost of Exploration and Production has also go up in leaps and bounds to. New Oil Discoveries are getting harder to find and we will need them to replace the Oil we are using today. Sure the Storage Tanks are full today, but what happens after that and in the future? Do we really want to depend on the lies of OPEC or Russia for our Oil? But if $100 / bbl. is to high, I do think most people in the Oil Industry, and Consumers, would be content at $60-$80 / bbl price range and like before.

Analysis say we are currently over supplied with Oil to a tune of 1.5 Million Barrels a Day. If you add Iran now you might be able to claim 2.0 Million Barrels a Day. Russia Exports 11 Million a Day and Saudi Arabia 10.5 Million a Day. If Russia and Saudi Arabia both agreed to cut back 1.0 Million Barrels of Oil per Day each, the over supply would be gone and we would see Oil shot up in price to $60 / bbl. almost overnight. That still puts pressure on the Oil Frackers and doesn't take much money out of the Consumers pocket. We don't need to go back to Grade 6 Math were selling 10 Million Barrels of Oil at $60 / bbl is better than selling 11 Million Barrels at $30 / bbl.

This isn't an Oil War on Frackers in the USA, or on Iran, or on Russia. What this is was a War from Saudi Arabia because of them losing total control over the Oil Industry and Oil Prices and them wanting that back. Which because it makes no economical sense to anyone whatsoever, has become just a Pissing Contest to show the power of the new King in Saudi Arabia.

JD Rockefeller became the richest man in the world when he established Standard Oil in the USA before the turn of the 20th Century. Even by today's standards, making allowances for inflation, he is considered one of the richest men who ever lived. But because he had such an influence on Oil, and Oil Prices, the United States Government Ruled that he had become a Monopoly, which was illegal. So they made him split his company into 34 new companies, to the likes of Conoco (now ConocoPhillips) Exxon, Mobile, (Now ExxonMobile) Amoco and Sohio, now part of BP, and Chevron, to name a few.

But today, over 100 years later, we are still at the mercy of one person, who is King in Saudi Arabia, to dictate to us all what the Oil Price will be around the world. Who heads an Organization called OPEC, which only listens to one voice. At least back then, at at his peak, JD Rockefeller controlled 90% of the worlds know Refined Oil. OPEC controls about 42%. So Saudi Arabia even a lot less.

I think it is time for governments to speak up and put an end to this as like JD Rockefeller, nobody should have a monopoly on Oil. It can be argued that countries found wars over this. Even Hitlers main reason for invasion of Russia was there Oil Fields in the South East. But this has happened too many tines already and before. Starting with the OPEC Oil Cartel in the early 70's, after Saudi Arabia took full control over ARAMCO. The over supply of the mid 80's, causing havoc in the Oil Industry for many years. Then again and over supply in the mid 90's. Then again in early 2002. Then again now. I suppose as long as only one person has control over Oil Prices, it will never end.

[willyumiii]

Great news!

The world will be a better, healthier place when the Fossil Fuel corporations dry up and blow away!

We do have viable, economic sources of energy now that can employ more people than the oil industry.

Can we at least stop the fracking now?

[farcanell]

But with all this over supply coming out of the groud, and onto the market... Arguably 2 million barrels a day....Where is it being stored?

[GOLDBUGGY]

But with all this over supply coming out of the groud, and onto the market... Arguably 2 million barrels a day....Where is it being stored?

Hell! This Oil is stored all over. Iran has all there storage tanks full plus about about 5 Oil Tanker Ships full to the brim. In the USA most of the Oil is stored on the Gulf Coast, near Refineries, and in Cushings Oklahoma, where West Texas Intermediate Oil, (W.T.I.) is priced from. There storage capacity alone is about 400 Million Barrels and they contain about 67% of the nations storage capacity, which Cushings sits right now at about 70% full. I am sure countries like UK also have large storage capacity..China for sure have huge storage capacities also. They are know for buying a lot at low prices and holding on high ones.

https://www.eia.gov/todayinenergy/detail.cfm?id=23992

[GOLDBUGGY]

Great news!

The world will be a better, healthier place when the Fossil Fuel corporations dry up and blow away!

We do have viable, economic sources of energy now that can employ more people than the oil industry.

Can we at least stop the fracking now?

You know people can only take a comment like this seriously after answering a few questions first. Do you own a car or motor bike but refuse to use this or ride with anyone who has one? Do you walk or ride a Bicycle everywhere you go? Do you, are have you ever flown in an airplane? Have you or do you use public transportation or a bus, train, or taxi, to get around. Are you Amish, and refuse to use modern technology and get around in horse and buggy? It is easy to say we can survive with out oil but not so easy to do.

Has it occurred to you that if we really had viable and economic sources of energy that we all would be using them right now? Nuclear is quite cheap, but then look what happened in Japan, and they were lucky. Sure we can make energy out of the wind and sun but at what cost? Are you will to pay $500 per barrel of oil equivalent just not to use oil ever again? Well, most people aren't willing to do this and neither are you. Or make fuel from corn? Do you know how crazy that is? You could use all of the corn produced in the USA and you wouldn't come near to what they use. But then Ethanol isn't cheap to make either.

Now consider the bi-products that come from oil also. Like Natural Gas used to heat homes and to make many products like fertilizer. Electrics Car are a nice idea but where do they get there electricity to plug them in to recharge from? Much of the Natural Gas is used in Power Generation. Almost all of your plastics also come from Oil. In fact with oil they make everything from Rubber to Perfume and everything in between that.

It is so easy to say we can do without oil, but our society is geared up to needed oil now. Nobody wants to go back to horse and carriage anymore. In fact JD Rockefeller made his first fortune just selling Kerosene which was use mostly for provide light in a Kerosene Lantern to illuminate your house at night time. Travelling by train in a Steam Locomotive might be cool, even if it is slow, but then using coal to make this steam is worst than oil.

The truth is, we can't live without oil and this is why wars were fought over it. Anyone who says different just doesn't know better. A Pipe Dream to think this world can just run on the sun and wind cheaply. Not in my lifetime for sure.

[farcanell]

But with all this over supply coming out of the groud, and onto the market... Arguably 2 million barrels a day....Where is it being stored?

Hell! This Oil is stored all over. Iran has all there storage tanks full plus about about 5 Oil Tanker Ships full to the brim. In the USA most of the Oil is stored on the Gulf Coast, near Refineries, and in Cushings Oklahoma, where West Texas Intermediate Oil, (W.T.I.) is priced from. There storage capacity alone is about 400 Million Barrels and they contain about 67% of the nations storage capacity, which Cushings sits right now at about 70% full. I am sure countries like UK also have large storage capacity..China for sure have huge storage capacities also. They are know for buying a lot at low prices and holding on high ones.

https://www.eia.gov/todayinenergy/detail.cfm?id=23992

Thanks for the feedback... interesting data.

Cheerd

[impulse]

Great news!

The world will be a better, healthier place when the Fossil Fuel corporations dry up and blow away!

We do have viable, economic sources of energy now that can employ more people than the oil industry.

Can we at least stop the fracking now?

If you figure that dropping the price of oil is good for the cleaner alternatives, you missed out on the last several oil busts.

Every time oil gets cheap, solar, wind, tidal, hydrogen, corn husk and cow flatulence projects get derailed. They just can't compete with cheap oil and gas. Alternative energy only gets legs when the price of oil and gas looks like it's on a permanent upward trajectory. That myth was smashed. Again.

This oil price upset will set back the alternatives by decades, while encouraging more folks to buy their big SUV's now that it's (relatively) cheap to fill them. Hardly anything to cheer about if you prefer cleaner energy.

The one silver lining is that we won't be burning as much of the world's food (corn, vegetable oil, etc) to convert it to energy- so the cost of feeding their families just went down for hundreds of millions of the world's poor.

[williamgeorgeallen]

Great news!

The world will be a better, healthier place when the Fossil Fuel corporations dry up and blow away!

We do have viable, economic sources of energy now that can employ more people than the oil industry.

Can we at least stop the fracking now?

having cheaper oil does not mean less of it gets used. we need oil to double or tripple, not get cheaper.

[farcanell]

Great news!

The world will be a better, healthier place when the Fossil Fuel corporations dry up and blow away!

We do have viable, economic sources of energy now that can employ more people than the oil industry.

Can we at least stop the fracking now?

having cheaper oil does not mean less of it gets used. we need oil to double or tripple, not get cheaper.

Lol.... A simple lack of understanding here.

Fracing is a cheap way to exploit depleted oil reserves, so the lower the cost of oil, the more fracing will occur, because the oil well has already been drilled ( that's the costly bit)

New drilling campaigns are on hold, but fracing is still going ahead because of this

And as williamgorgeallen has pointed out, cheaper costs don't relate to less use of fossil fuels, it actually translates to more use, as people go back to driving big cars with outrageous consumption levels

Alternative energy projects also suffer, because it takes money to establish alternative energy options, so the cheaper the oil, the less incentive to spend on alternatives.