Falling Oil Prices Put Producers Between a Rock and a Hard Place

[DEAD7]

October 13, 2014 10:45AM
Falling Oil Prices Put Producers Between a Rock and a Hard Place
By Steve H. Hanke

Over the last few months, the price of Brent crude oil lost over 20% of its value, dropping below $90 just yesterday and hitting its lowest level in over two years. In consequence, oil producers will no longer be able to rely on oil revenues to pay their bills. The fiscal break-even price – a metric that determines the price per barrel of oil required for a nation to balance its budget at current levels of production – puts the problem into perspective.
Using data from Bloomberg and Deutsche Bank, I prepared a chart showing the break-even prices for the world’s major oil producers and the price on Brent crude. Over the past six months, Brent crude fell far below the break-even price for eleven of the top oil producers in the world; Iran, Venezuela, Nigeria, and even Saudi Arabia can no longer finance their governments’ largess through oil revenues.

The combination of oil markets flying into a perfect storm and excessive government spending puts most of the world’s oil producers between a rock and a hard place, where they will stay for some time.

 

[88m3]

that free market





what worries me are the prices of metals

 

[Robbie3000]

I don't follow the crude oil markets. What is to explain the fall in prices? The U.S. economy is picking up. Where is demand falling?

Someone get Ja on the line.

 

[无名的]

I don't follow the crude oil markets. What is to explain the fall in prices? The U.S. economy is picking up. Where is demand falling?

Someone get Ja on the line.

The media's new favorite word is "glut". There is a glut of supply right now, much of that in part to record production levels from US shale drilling. China and Germany have slowing demand because of economic conditions. Libya has ramped up production. OPEC members are hurting and want to rebalance the market, but Saudi Arabia seems to be OK with current levels, leading some to speculate the intention is to drive US companies out of business due to lower oil prices and increasing production costs. I also think I read something like Saudi Arabia cut production levels awhile ago, while other members didn't follow suit, oil plummeted, and it hurt Saudi Arabia, so they're probably hesitant to do so again.

 

[Domingo Halliburton]

I sold some cvx the other day...i haven't done that in 2 years

 

[Rarely-Wrong Liggins]

, but Saudi Arabia seems to be OK with current levels, leading some to speculate the intention is to drive US companies out of business due to lower oil prices and increasing production costs.

Those darned Saudis. What ARE we going to do with those jokesters?

 

[Domingo Halliburton]

I don't follow the crude oil markets. What is to explain the fall in prices? The U.S. economy is picking up. Where is demand falling?

Someone get Ja on the line.

QE is ending. There is no inflation. Basically the US is going to stop printing dollars.

so the supply of dollars is falling. Meaning the USD is appreciating.

oil is priced in US Dollars. Oil prices historically move in the opposite direction of the US dollar.

 

[88m3]

QE is ending. There is no inflation. Basically the US is going to stop printing dollars.

so the supply of dollars is falling. Meaning the USD is appreciating.

oil is priced in US Dollars. Oil prices historically move in the opposite direction of the US dollar.

with the rising value of the US dollar do you think price of consumer goods will rise significantly?

 

[Futuristic Eskimo]

with the rising value of the US dollar do you think price of consumer goods will rise significantly?

I expect the Fed to make it clear soon enough that they aren't raising rates for the foreseeable future, so the dollar should weaken again. Generally, a strong dollar causes downward pressure on prices though.

 

[Tha Sircus]

QE is ending. There is no inflation. Basically the US is going to stop printing dollars.

so the supply of dollars is falling. Meaning the USD is appreciating.

oil is priced in US Dollars. Oil prices historically move in the opposite direction of the US dollar.

Someone gets it

 

[88m3]

I expect the Fed to make it clear soon enough that they aren't raising rates for the foreseeable future, so the dollar should weaken again. Generally, a strong dollar causes downward pressure on prices though.

thanks.

what if the dollar doesn't weaken?

is it possible that the rise in the value of the dollar was done purposefully to put pressure on foreign countries?

is what we're seeing now with the dollar more of a reflection or return to its "real value" ?

 

[Futuristic Eskimo]

thanks.

what if the dollar doesn't weaken?

is it possible that the rise in the value of the dollar was done purposefully to put pressure on foreign countries?

is what we're seeing now with the dollar more of a reflection or return to its "real value" ?

The strengthening of the dollar was primarily due to the perceived divergence in this country's monetary policy when compared to the rest of the relevant world. We're supposedly ending QE while everyone else will continue to be loose. Whether this happens is up for debate. The dollar has actually weakened recently because the markets perception is that the Fed will hold off on raising rates due to deflationary concerns among others.

Fed policy is concerned with our economy so it would be a huge stretch to say the current conditions are a conscience move against other countries. There's too much to lose to play that kind of game. Besides, in my opinion, crude prices dropping has much more to do with oversupply and slowing growth than a strengthening dollar. If QE was still going strong, that market would've collapsed anyway.

I'm sure you can find some articles about the effects of a strong dollar on the economy online so I wont get into that needlessly.

 

[Tha Sircus]

Where on the edge of the greatest bubble in human history brehs the real vaule of a dollar is what it's backed by which is......... nothing. Just like every other currency in the world, when QE3 stops or when QE4 starts its all gonna go

 

[Domingo Halliburton]

thanks.

what if the dollar doesn't weaken?

is it possible that the rise in the value of the dollar was done purposefully to put pressure on foreign countries?

is what we're seeing now with the dollar more of a reflection or return to its "real value" ?

oil being at these prices might screw the shale boom....i.e. One of the few parts of this economy hiring.

they want inflation. Let your boy @DEAD7 tell you

 

[Domingo Halliburton]

Where on the edge of the greatest bubble in human history brehs the real vaule of a dollar is what it's backed by which is......... nothing. Just like every other currency in the world, when QE3 stops or when QE4 starts its all gonna go

put your money where your mouth is and short the dollar....