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The Global Effects of Falling [Oil Prices] - OPEC tentatively agreed to cut production

joshofalltradesjoshofalltrades Class TraitorSmoke-filled roomRegistered User regular
edited September 2016 in Debate and/or Discourse
You may have noticed, with some delight, that you are paying perhaps half the amount of money you did at the pump last year.

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Simply put, this is a supply/demand issue.
It is textbook economics: falling demand and rising supply. The US has ramped up domestic oil production by investing in fracking projects. US oil production increased by around 48% between 2008-13, taking output to 11m barrels a day by early 2014. At first, the US surge in output was offset by supply disruptions elsewhere: western sanctions on Iran, turmoil in Iraq and Libya. But some supply problems have abated.

Just as supply has peaked, demand for oil has been slowing. Consumption in Europe and Japan fell in 2014, as governments struggled to fix economic problems. In the US, tighter fuel economy standards for vehicles and the closure of petrochemical plants led to a reduction in demand. Perhaps the biggest factor weighing on oil prices was a slowdown in the Chinese economy. These big trends hit home in 2014. Prices dropped by more than a third over last summer and autumn. When the Opec cartel announced in November it would not cut production in response to falling prices, it caused a further drop.

So this is good, right?

Opinions are somewhat divided, apparently. It's unquestionably a good thing for the US economy in the short term, as households spend less money on fuel which can be spent elsewhere. Businesses, especially those with employees that travel a lot, will also save money. The cost of transit for shipments is cheaper, too. Many European countries are also celebrating the low oil prices, the UK perhaps foremost among them.

There are a couple of reasons to be wary, though. One is that low interest rates in the US have encouraged spectators to purchase oil as a method of parking wealth, by borrowing for holding oil contracts. There is an estimated $9 trillion dollars held up in these at the moment. And the Federal Reserve is getting closer to raising the interest rates.

The abruptness of the fall in oil prices is also going to cause unpredictable effects not just on world economies, but on world politics as well. Russia in particular is feeling the pinch pretty severely (you can't see me, but I'm playing the world's smallest violin for them) because their economy is so heavily dependent upon high oil prices.

To be honest, I know very little about economics. It's not really my field, but the situation is interesting to me and I'd like to know what D&D thinks about it. I'm personally of the opinion that reducing our dependence on oil, foreign or otherwise, is the best possible thing for the planet, and so obviously economics is not the only concern. I'm not convinced that falling oil prices will actually reduce our dependence on oil; on the contrary, I think this will cause people to care less about conserving fuel, since it's currently so cheap. I don't think this means people will run right out to get a Hummer, but it wouldn't surprise me if people spent more time on the road that they didn't previously need to.

This is a thread for discussion of the oil market and all related issues.

joshofalltrades on
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Posts

  • JepheryJephery Registered User regular
    I've read some doom and gloom about how the fall in oil prices could cause a fracking bust in the US, which could take down the banking system again as the fracking companies borrowed tons of money to buy fracking rights.

    Not actually knowledgeable enough to know if that is really a risk.

    }
    "Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
  • AbsalonAbsalon Lands of Always WinterRegistered User regular
    edited January 2015
    Anything that makes Putin wary of doing anything radical is good news (too much hurt could be a problem, but making Russia's war chest weaker in case they decide to bully the Baltics et al. is important). The fact that the Russian government can't spend freely on dangerous fascists/populists committed to turning Europe into a nationalism-riddled, disunited quilt is also a big bonus.

    Absalon on
  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    I think the fear is that this will force Russia to make bold moves to compensate for their financial dire straights. I wish I knew how likely that was, though.

  • VeeveeVeevee WisconsinRegistered User regular
    edited January 2015
    I'm just afraid it's going to hit a bottom, then skyrocket almost exponentially*. Can someone tell me this is irrational and I don't have anything to be afraid of?
    *signaling the end of the world as we know it

    Veevee on
  • JepheryJephery Registered User regular
    Veevee wrote: »
    I'm just afraid it's going to hit a bottom, then skyrocket almost exponentially*. Can someone tell me this is irrational and I don't have anything to be afraid of?
    *signaling the end of the world as we know it

    If oil prices got too high, the global economy would slowdown, causing oil prices to come back down. Higher oil prices also make competitors more attractive.

    }
    "Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
  • TheCanManTheCanMan GT: Gasman122009 JerseyRegistered User regular
    Jephery wrote: »
    I've read some doom and gloom about how the fall in oil prices could cause a fracking bust in the US, which could take down the banking system again as the fracking companies borrowed tons of money to buy fracking rights.

    Not actually knowledgeable enough to know if that is really a risk.

    I've read that this is a feature of OPEC not dialing back the excess production, rather than an unintended consequence. The idea being that it costs so little to pull oil out of Middle East that OPEC decided to intentionally crash the price of oil to bankrupt the American fracking industry. And once they kill off the competition, they'll bring prices back up to where they normally would be.

    That feels a bit tinfoil hat worthy, but it makes some sense. And also has a nice DOOOOOM aftertaste.

  • nexuscrawlernexuscrawler Registered User regular
    I wonder how political it is. We're close allies with the Saudis. This move is hurting countries who don't like the most primarily Venezuela, Iran and Russia.

  • DevoutlyApatheticDevoutlyApathetic Registered User regular
    Yea, I had heard that the oil crash was intentional in order to keep the pressure on Russia.

    Nod. Get treat. PSN: Quippish
  • QuidQuid Definitely not a banana Registered User regular
    Thanks, Obama.

  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    It is a move by the Saudis aimed directly at American and Russian production.

    America's economy is somewhat (ie completely) more diversified thanRussias so we can absorb the short term shock more than they can.

    Long term it's bad knees for fracking. Longer term it's bad news for alternative fuels since if oil is cheap no one wants to invest in more expensive forms.

    Lh96QHG.png
  • TheCanManTheCanMan GT: Gasman122009 JerseyRegistered User regular
    edited January 2015
    The "Saudi's are doing it to screw Russia" theory is a much happier theory than the "Saudi's are doing it to kill competition from US fracking". I'm going to go with that until proven wrong. :D

    TheCanMan on
  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    We aren't pushing back too much because we like the pressure on Putin.

    Idk what good it's goin to do. The Russians are already paranoid, I'm not sure what good justifying that does.

    Lh96QHG.png
  • khainkhain Registered User regular
    TheCanMan wrote: »
    Jephery wrote: »
    I've read some doom and gloom about how the fall in oil prices could cause a fracking bust in the US, which could take down the banking system again as the fracking companies borrowed tons of money to buy fracking rights.

    Not actually knowledgeable enough to know if that is really a risk.

    I've read that this is a feature of OPEC not dialing back the excess production, rather than an unintended consequence. The idea being that it costs so little to pull oil out of Middle East that OPEC decided to intentionally crash the price of oil to bankrupt the American fracking industry. And once they kill off the competition, they'll bring prices back up to where they normally would be.

    That feels a bit tinfoil hat worthy, but it makes some sense. And also has a nice DOOOOOM aftertaste.

    How exactly do they think this is going to work? Even if the current fracking industry goes bankrupt someone takes over the debt and/or the assets and unless the price of oil continues to dive the wells in production will continue to produce. It may stop further exploration, but unlike other oil ventures fracking relies on a high volume of wells at relatively low cost with minimal exploration costs so the moment that the price goes back up people will be back in the game. I think the far more likely explanation is that OPEC is bad at being a cartel because it's member's interests don't actually align and Saudi Arabia doesn't want to lose market share.

  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    I think this will harm the people who are bad at doing business (i.e. borrowing money to drill wells) and the people who can afford to pay for it themselves will just hold off on drilling new wells until the price comes back up.

  • JepheryJephery Registered User regular
    edited January 2015
    I think this will harm the people who are bad at doing business (i.e. borrowing money to drill wells) and the people who can afford to pay for it themselves will just hold off on drilling new wells until the price comes back up.

    The problem with fracking is that you have to borrow money to keep drilling more wells. Fracked oil wells run dry very quickly, so to pay off the debt you already accumulated, you need to borrow more to drill more.

    Jephery on
    }
    "Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
  • VeeveeVeevee WisconsinRegistered User regular
    The problem with fracking is its fucking terrible and should be banned anyway. It destroys drinking water and has been proven to have caused earthquakes in Ohio felt by humans. If this is a plot to get rid of fracking, I'm on team Saudi Arabia.

    But just on this issue of course, let's be real here.

  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    edited January 2015
    Well, I wasn't specifically talking about fracking. Some companies run consistently in the black by letting wells eventually pay for themselves and using the revenue they accrue from that point on to run their business and drill other wells.

    joshofalltrades on
  • Hexmage-PAHexmage-PA Registered User regular
    Jephery wrote: »
    I've read some doom and gloom about how the fall in oil prices could cause a fracking bust in the US, which could take down the banking system again as the fracking companies borrowed tons of money to buy fracking rights.

    But, fracking's bad, right?

  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    Even if you disagree that fracking is bad, the precautionary principle applies here, since the cost of being wrong is that you've completely fucked over the planet and the human race.

  • JepheryJephery Registered User regular
    Hexmage-PA wrote: »
    Jephery wrote: »
    I've read some doom and gloom about how the fall in oil prices could cause a fracking bust in the US, which could take down the banking system again as the fracking companies borrowed tons of money to buy fracking rights.

    But, fracking's bad, right?

    Well, yeah. I'm just hoping that the financial system isn't as vulnerable to a fracking bust as some people say it is.

    }
    "Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
  • SurfpossumSurfpossum A nonentity trying to preserve the anonymity he so richly deserves.Registered User regular
    My understanding of fracking (which is incredibly limited and based primarily off of opinions my geophysics friend has) is that the effects are primarily good, since they relieve buildup that would potentially result in larger quakes or something like that.

    The bad stuff comes from all the top-secret junk that gets used in fracking fluid, which tends to be literally poison or somesuch.

    Is this incorrect?

  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    I ran XRF on a sample of fracking fluid and it had weird fucking shit in it. Like, terbium and gadolinium.

  • DevoutlyApatheticDevoutlyApathetic Registered User regular
    Even if you disagree that fracking is bad, the precautionary principle applies here, since the cost of being wrong is that you've completely fucked over the planet and the human race.

    The thing that gets me is the rush to frak. Energy prices are going nowhere but up so if we take our time with testing it we just end up selling at a higher price later on.

    That...sure sounds horrible.

    Nod. Get treat. PSN: Quippish
  • kaidkaid Registered User regular
    It is a move by the Saudis aimed directly at American and Russian production.

    America's economy is somewhat (ie completely) more diversified thanRussias so we can absorb the short term shock more than they can.

    Long term it's bad knees for fracking. Longer term it's bad news for alternative fuels since if oil is cheap no one wants to invest in more expensive forms.

    Eh it just means we slurp down their cheap gas until they run dry and then eventually we would restart ours again if they get turned off for a while due to the price dip. It is annoying that it likely pushes alternative fuels down the line a bit but I don't think anybody expects the current prices to stay this way long term the overall global hunger for gas is just to high.

  • IncenjucarIncenjucar VChatter Seattle, WARegistered User regular
    Even if you disagree that fracking is bad, the precautionary principle applies here, since the cost of being wrong is that you've completely fucked over the planet and the human race.

    The thing that gets me is the rush to frak. Energy prices are going nowhere but up so if we take our time with testing it we just end up selling at a higher price later on.

    That...sure sounds horrible.

    It's basically "In before renewables!"

    Also short-term thinking is the only thinking that can be depended on in our economy.

  • CantelopeCantelope Registered User regular
    edited January 2015
    If fracking dies it may not start up again, and probably won't on the same scale. Fracking has largely been an unprofitable venture. Original estimates of profitability were all contingent on getting a certain amount of oil per well drilled. There were few sites where they actually got that. What ends up happening is that for the oil they know is there, they end up drilling three or four wells for that, which is significantly more expensive. Oil profitability varies quite a bit depending on the driller's costs, and what were seeing is that most of these frackers can't compete except when the oil price is much higher than it's been.


    As more cities move to ban fracking as more evidence comes out about the negative health consequences, the cost for borrowers to frack will increase, as that will present a greater risk. What we were already seeing before any of these low oil prices hit the scene was an industry that was largely struggling to produce any profit, and where many market participants were operating on a slight loss. I believe the fracking industry always was, and always will be a temporary phenomenon. If there is any risk that water sources or arable land was being put at risk by these activities, or that there were other non-negligible environmental concerns then effectively we've been robbing the future so that we could lose money today.


    That is not to say that there are no profitable frackers, but a large portion of the industry has just been scraping by on their ability to borrow in the hopes of performing better in the future. With the price of oil going down we are going to see bankruptcies, and the first was announced recently,


    http://www.economicpolicyjournal.com/2015/01/the-first-shale-oil-casualty-wbh-energy.html


    Edit: To backup my claim about unprofitability, note this article about Shell losing money fracking in 2013. Oil is the industry of major players, people who have lots of resources backing them. If they can't figure it out while employing the world's best and brightest geologists, you probably can't either.


    http://www.ft.com/cms/s/0/3e56228a-2ce4-11e3-8281-00144feab7de.html#axzz3OB6ldJKU

    Cantelope on
  • SavantSavant Simply Barbaric Registered User regular
    TheCanMan wrote: »
    The "Saudi's are doing it to screw Russia" theory is a much happier theory than the "Saudi's are doing it to kill competition from US fracking". I'm going to go with that until proven wrong. :D

    Can't it be both? There are lots of competitors in the oil market that the Saudis dislike to varying degrees, and pretty much all of them can't handle a stretch of low oil prices nearly as well as the Saudis can, since the Saudis have such easily exploitable supplies. Iran's a big one on that list that the Saudis clearly don't like and can't handle low oil prices, though you got others too, like the Russians and Venezuelans.

  • CantidoCantido Registered User regular
    Let us take a moment to play the world's tiniest fiddle for speculators.

    3DS Friendcode 5413-1311-3767
  • Dis'Dis' Registered User regular
    Jephery wrote: »
    I've read some doom and gloom about how the fall in oil prices could cause a fracking bust in the US, which could take down the banking system again as the fracking companies borrowed tons of money to buy fracking rights.

    Not actually knowledgeable enough to know if that is really a risk.

    Nah probably not a complete crash since some plays are still profitable at a very low price and some have momentum to last a year of low prices. Expect a lot of mergers and consolidation and small companies dying off though - already happening with Halliburton's merger. It's certainly worse for small innovators than the corporate behemoths with politicians in their pocket. US onshore tight oil and gas production is so granular that it could potential ramp back up quickly after a fall especially with the knowledge base available now. A bad thing in the US regulatory environment is that the price pressure may see even more corners cut in safety and environmental protection.

  • Dis'Dis' Registered User regular
    Surfpossum wrote: »
    My understanding of fracking (which is incredibly limited and based primarily off of opinions my geophysics friend has) is that the effects are primarily good, since they relieve buildup that would potentially result in larger quakes or something like that.

    The bad stuff comes from all the top-secret junk that gets used in fracking fluid, which tends to be literally poison or somesuch.

    Is this incorrect?

    I'd agree with the latter being the worst problem with fracking, which is why sane countries set very tight rules about fracking fluids (in the UK its just water, sand, hydrochloric acid, and a biocide as the absolute maximum)

  • FencingsaxFencingsax It is difficult to get a man to understand, when his salary depends upon his not understanding GNU Terry PratchettRegistered User regular
    I actually thought the Saudis were waiting on doing anything to fuck with the Iranians.

  • spool32spool32 Contrary Library Registered User regular
    Cantelope wrote: »
    If fracking dies it may not start up again, and probably won't on the same scale. Fracking has largely been an unprofitable venture. Original estimates of profitability were all contingent on getting a certain amount of oil per well drilled. There were few sites where they actually got that. What ends up happening is that for the oil they know is there, they end up drilling three or four wells for that, which is significantly more expensive. Oil profitability varies quite a bit depending on the driller's costs, and what were seeing is that most of these frackers can't compete except when the oil price is much higher than it's been.


    As more cities move to ban fracking as more evidence comes out about the negative health consequences, the cost for borrowers to frack will increase, as that will present a greater risk. What we were already seeing before any of these low oil prices hit the scene was an industry that was largely struggling to produce any profit, and where many market participants were operating on a slight loss. I believe the fracking industry always was, and always will be a temporary phenomenon. If there is any risk that water sources or arable land was being put at risk by these activities, or that there were other non-negligible environmental concerns then effectively we've been robbing the future so that we could lose money today.


    That is not to say that there are no profitable frackers, but a large portion of the industry has just been scraping by on their ability to borrow in the hopes of performing better in the future. With the price of oil going down we are going to see bankruptcies, and the first was announced recently,


    http://www.economicpolicyjournal.com/2015/01/the-first-shale-oil-casualty-wbh-energy.html


    Edit: To backup my claim about unprofitability, note this article about Shell losing money fracking in 2013. Oil is the industry of major players, people who have lots of resources backing them. If they can't figure it out while employing the world's best and brightest geologists, you probably can't either.


    http://www.ft.com/cms/s/0/3e56228a-2ce4-11e3-8281-00144feab7de.html#axzz3OB6ldJKU

    @gooey can you speak to this?

    This thread was made for oils like you

  • spool32spool32 Contrary Library Registered User regular
    Also I am overjoyed at the price of gas right now and will support nearly anything to keep it below $2/gal for a few months or longer.

  • durandal4532durandal4532 Registered User regular
    Fracking has the nasty side effect of frequently destroying aquifers.

    Pulling oil out of the ground in a process that directly lowers the number of sources of fresh water we have is the worst sort of short-term thinking.

    Take a moment to donate what you can to Critical Resistance and Black Lives Matter.
  • spool32spool32 Contrary Library Registered User regular
    Frequently?

    A bunch of aquifers have been destroyed?! Which ones?

  • MvrckMvrck Dwarven MountainhomeRegistered User regular
    Wyoming and California have been confirmed to have been poisoned by fracking. But who cares about the California water supply, they have plenty, right?

  • JohnnyCacheJohnnyCache Starting Defense Place at the tableRegistered User regular
    spool32 wrote: »
    Frequently?

    A bunch of aquifers have been destroyed?! Which ones?

    What's your standard for sufficiently infrequently?

    What do you mean by destroyed?

  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    edited January 2015
    spool32 wrote: »
    Frequently?

    A bunch of aquifers have been destroyed?! Which ones?

    What's your standard for sufficiently infrequently?

    What do you mean by destroyed?

    I know people like to gang up on spool and all but @durandal4532 is the one who used the word "destroyed", so it's really on him to define what he meant by it.

    joshofalltrades on
  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    Anyway, I personally think it's bullshit that fracking gets so many ridiculous legal exemptions.

  • joshofalltradesjoshofalltrades Class Traitor Smoke-filled roomRegistered User regular
    If you're not using harmful shit, then you shouldn't be afraid of disclosing what it is you're using. If you are using harmful shit...

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