Drop in Gasoline Prices a Bad Thing?

[lpetrich]

Fox Now Asking: Is The Drop In Gas Prices A Bad Thing? | Blog | Media Matters for America

Earlier this year, Fox News hyped the rise in gasoline prices, blaming President Obama even though experts agree that worldwide market factors, not U.S. policies, set gas prices. So what is Fox saying now that gas prices are falling? ...

Stuart Varney, the Fox Business host pictured at the top, tried to explain the claim that the recent gas price drop might be "BAD," saying it may be "just a sign of a weakening economy." The Wall Street Journal reported that one of the reasons for the drop in gas prices was the "softening economies in the U.S. and Europe," along with easing tensions in Iran and changes in the oil market.

Will the Saudis drive U.S. shale out of business? Kemp | Reuters from their lowering their crude-oil prices.

Why might they be doing it? My best guess is a price war with Iran to try to hurt that nation. Saudi Arabia's leaders may figure that they can survive less oil revenue better than Iran's.

But what might other oil producers say to Saudi King Abdullah? Stephen Harper with the Alberta tar sands? Charles and David Koch with their involvement in North Dakota oil-shale fracking? Vladimir Putin?

The Kochs: "We have politicians' careers to finance. They need money for ads. We have propaganda mills. They also need money to get their propaganda widely featured. We are your biggest protectors, and we'll help get elected politicians who will protect you. Without money, your protectors could lose elections, and we'd lose business to those hippie fairy renewable energy sources."

Vladimir Putin: "I have a Ukraine dismemberment to finance. It's especially bad given that our troops' cover has gotten blown there. We had been succeeding where US President JFK had failed half a century ago in Cuba, but now it looks like we'll only get some territory."

 

[Harry Bosch]

Fox Now Asking: Is The Drop In Gas Prices A Bad Thing? | Blog | Media Matters for America

Earlier this year, Fox News hyped the rise in gasoline prices, blaming President Obama even though experts agree that worldwide market factors, not U.S. policies, set gas prices. So what is Fox saying now that gas prices are falling? ...

Stuart Varney, the Fox Business host pictured at the top, tried to explain the claim that the recent gas price drop might be "BAD," saying it may be "just a sign of a weakening economy." The Wall Street Journal reported that one of the reasons for the drop in gas prices was the "softening economies in the U.S. and Europe," along with easing tensions in Iran and changes in the oil market.

Will the Saudis drive U.S. shale out of business? Kemp | Reuters from their lowering their crude-oil prices.

Why might they be doing it? My best guess is a price war with Iran to try to hurt that nation. Saudi Arabia's leaders may figure that they can survive less oil revenue better than Iran's.

But what might other oil producers say to Saudi King Abdullah? Stephen Harper with the Alberta tar sands? Charles and David Koch with their involvement in North Dakota oil-shale fracking? Vladimir Putin?

The Kochs: "We have politicians' careers to finance. They need money for ads. We have propaganda mills. They also need money to get their propaganda widely featured. We are your biggest protectors, and we'll help get elected politicians who will protect you. Without money, your protectors could lose elections, and we'd lose business to those hippie fairy renewable energy sources."

Vladimir Putin: "I have a Ukraine dismemberment to finance. It's especially bad given that our troops' cover has gotten blown there. We had been succeeding where US President JFK had failed half a century ago in Cuba, but now it looks like we'll only get some territory."

I think that it is mostly good. Obviously countries that are primarily oil producers who haven't diversified will be in the toilet (Russia, Iran, Venesula, and etc.). It may impede Russia's growth in military spending. It will increase disposable personal income, lower the cost of sales for most manufacturers and all other businesses.

 

[AthenaAwakened]

Well of course it is bad. Isn't Obama still president? Well, then it must be bad.

 

[Harry Bosch]

Well of course it is bad. Isn't Obama still president? Well, then it must be bad.

Good point! Not too long ago, republicans were blaming Obama for higher gas prices. So now maybe they'll praise him for lower? Not very likely.......

 

[Davka]

FOX hasn't figured out the real reason that lower gas prices are bad. It's due to the fact that FOX news viewers are shortsighted morons, resulting in a sudden surge in the sales of pickup trucks and SUVs whenever gas prices go down. Remember: When gas prices rise, it's because of Obama and socialist hippie Murka-haters, but when they drop it's simply a return to the natural state of things.

 

[Jimmy Higgins]

I still don't understand why Saudi Arabia would do this to kill shale fracking in the US. Why should they care? Oil was $80 to $100 a barrel, they are making plenty of oil and not ramping up production to lessen how long they can pump oil in the future. Oil production from fracking wasn't harming the global cost of oil that much.

Maybe I'm just out of whack, but I feel this has more to do with Russia than shale fracking in the US. Russia was stepping too far and now their economy is being destroyed.

As far as it being a good thing, it puts more disposal money into the wallet for every American. Prices for laying asphalt roads drops. It is a minor boom for the economy.

 

[SimpleDon]

Fox Now Asking: Is The Drop In Gas Prices A Bad Thing? | Blog | Media Matters for America

Earlier this year, Fox News hyped the rise in gasoline prices, blaming President Obama even though experts agree that worldwide market factors, not U.S. policies, set gas prices. So what is Fox saying now that gas prices are falling? ...

Stuart Varney, the Fox Business host pictured at the top, tried to explain the claim that the recent gas price drop might be "BAD," saying it may be "just a sign of a weakening economy." The Wall Street Journal reported that one of the reasons for the drop in gas prices was the "softening economies in the U.S. and Europe," along with easing tensions in Iran and changes in the oil market.

Will the Saudis drive U.S. shale out of business? Kemp | Reuters from their lowering their crude-oil prices.

<snip>

Only if you own an oil well.

 

[Harry Bosch]

I still don't understand why Saudi Arabia would do this to kill shale fracking in the US. Why should they care? Oil was $80 to $100 a barrel, they are making plenty of oil and not ramping up production to lessen how long they can pump oil in the future. Oil production from fracking wasn't harming the global cost of oil that much.

Maybe I'm just out of whack, but I feel this has more to do with Russia than shale fracking in the US. Russia was stepping too far and now their economy is being destroyed.

As far as it being a good thing, it puts more disposal money into the wallet for every American. Prices for laying asphalt roads drops. It is a minor boom for the economy.

I don't think that the Saudis care about Russian aggression. They are simply doing what any company would do, trying to crush their competition. It takes years for the oil fields in the US and Canada to develop. Many years and mucho dinero. The lower prices will retard the development of new oil fields. Once supply again (18 months or so), they will raise their prices and extract as much profit as they can.

 

[dismal]

I don't know why anyone would accept the Saudis are "doing this". A need to feel someone somewhere is in control, I guess. At best I think it can be said the Saudis have affected psychology.

As for whether it's good for the economy, I think the most plausible argument that it is not is that the oil and gas sector has been making up a fairly large portion of the capital investment in the economy during the downturn. I heard someone say 25% of the capital invested by the S&P 500 has gone into oil and gas of late. The conventional wisdom woul be that the extra dollars in people's pockets would spur enough investment to more than offset this in the long run, but I'm not sure it will happen in the short run. Of course, the oil & gas investment hasn't really slowed down much yet either.

- - - Updated - - -

I don't know why anyone would accept the Saudis are "doing this". A need to feel someone somewhere is in control, I guess. At best I think it can be said the Saudis have affected psychology.

As for whether it's good for the economy, I think the most plausible argument that it is not is that the oil and gas sector has been making up a fairly large portion of the capital investment in the economy during the downturn. I heard someone say 25% of the capital invested by the S&P 500 has gone into oil and gas of late. The conventional wisdom woul be that the extra dollars in people's pockets would spur enough investment to more than offset this in the long run, but I'm not sure it will happen in the short run. Of course, the oil & gas investment hasn't really slowed down much yet either.

 

[Horatio Parker]

The reason that made most sense to me is that the Saudis are protecting their market share. If they cut production, non-OPEC countries would take up the slack, defeating the purpose.

The Saudis want Assad out and they want the Iranians suppressed. We're failing them on both counts, so if their move creates havoc in our highly leveraged domestic oil industry, tough tittie.

 

[dismal]

The reason that made most sense to me is that the Saudis are protecting their market share. If they cut production, non-OPEC countries would take up the slack, defeating the purpose.

The Saudis want Assad out and they want the Iranians suppressed. We're failing them on both counts, so if their move creates havoc in our highly leveraged domestic oil industry, tough tittie.

What exactly are the Saudis doing?

 

[funinspace]

Blaming the Saudis is a funny game. SA oil production rates are relatively unchange over the last 3 years. Its ranged from 9.1 to 10.04 M bbl/day
See: https://ycharts.com/indicators/saudi_arabia_crude_oil_production

However, the US has gone from about 6.2 to 8.8 M bbl/day since the beginning of 2012. What the Saudis didn’t do was reduce production in the face of sagging demand combined with world production climbing.

http://www.vox.com/2014/12/16/7401705/oil-prices-falling

The short version of the story goes like this: For much of the past decade, oil prices were high — bouncing around $100 per barrel since 2010 — because of soaring oil consumption in countries like China and conflicts in key oil nations like Libya. Oil production couldn't keep up with demand, so prices spiked.

But beneath the surface, many of those dynamics were rapidly shifting. High prices spurred companies in the US and Canada to start drilling for new, hard-to-extract crude in North Dakota's shale formations and Alberta's oil sands. At the same time, demand for oil in places like Europe, Asia, and the US began tapering off, thanks to weakening economies and new efficiency measures. On top of that, the conflict in Libya was slowly easing.

By late 2014, world oil supply was on track to rise much higher than actual demand, as the chart below from the International Energy Agency shows. And, in September, prices started falling sharply.

Good chart from article:

 

[SimpleDon]

I still don't understand why Saudi Arabia would do this to kill shale fracking in the US. Why should they care? Oil was $80 to $100 a barrel, they are making plenty of oil and not ramping up production to lessen how long they can pump oil in the future. Oil production from fracking wasn't harming the global cost of oil that much.

Maybe I'm just out of whack, but I feel this has more to do with Russia than shale fracking in the US. Russia was stepping too far and now their economy is being destroyed.

As far as it being a good thing, it puts more disposal money into the wallet for every American. Prices for laying asphalt roads drops. It is a minor boom for the economy.

Fracking isn't going to be killed by a two or three year dip in the prices of oil. You have a break even point below which you stop the fracking and take how much oil you can pump without it.

The main costs of fracking are variable costs, the costs of firing the boilers, the cost of the chemicals and the cost of the electricity to run the pumps. The fixed costs, mainly the equipment capital costs aren't high relatively, (and are usually leased.)

The most vulnerable are the bitumen operations, tar sands. They have both high fixed costs and high variable costs. However, like any established business they can ride out a lower price if the price at least covers their variable costs.

 

[Jimmy Higgins]

I still don't understand why Saudi Arabia would do this to kill shale fracking in the US. Why should they care? Oil was $80 to $100 a barrel, they are making plenty of oil and not ramping up production to lessen how long they can pump oil in the future. Oil production from fracking wasn't harming the global cost of oil that much.

Maybe I'm just out of whack, but I feel this has more to do with Russia than shale fracking in the US. Russia was stepping too far and now their economy is being destroyed.

As far as it being a good thing, it puts more disposal money into the wallet for every American. Prices for laying asphalt roads drops. It is a minor boom for the economy.

I don't think that the Saudis care about Russian aggression.

The Western World does, and diplomacy can be funny in that way.

They are simply doing what any company would do, trying to crush their competition. It takes years for the oil fields in the US and Canada to develop. Many years and mucho dinero. The lower prices will retard the development of new oil fields. Once supply again (18 months or so), they will raise their prices and extract as much profit as they can.

But is it really competition? When they were already making plenty of money to start with, why try to crush competition that really isn't competition. It isn't as if fracking in the US was doing to the global oil price what Saudi Arabia is doing now.

 

[TV and credit cards]

The reason that made most sense to me is that the Saudis are protecting their market share. If they cut production, non-OPEC countries would take up the slack, defeating the purpose.

This is my take on it also. The Saudis are just keeping more production from coming on line. US shale wells peter out fast and if the low prices hurt Russia and Iran, all the better. They're not exactly on the Saudis Christmas card list.

 

[dismal]

what Saudi Arabia is doing now.

Which is what, precisely?

 

[credoconsolans]

I doubt it's to restrict shale development. The price per barrel of Middle Eastern crude would have to be a LOT lower than it is now, to do that.

 

[Derec]

I don't know why anyone would accept the Saudis are "doing this". A need to feel someone somewhere is in control, I guess.

Well KSA didn't exactly do this. They didn't cause the non-conventional oil developments that increased supply nor did they cause the slowdown in demand. However, they together with the rest of OPEC did control the price by regulating their output. That they are not doing so now is significant.
SAUDI OIL MINISTER: I Don't Care If Prices Crash To $20 — We're Not Budging

 

[dismal]

I don't know why anyone would accept the Saudis are "doing this". A need to feel someone somewhere is in control, I guess.

Well KSA didn't exactly do this. They didn't cause the non-conventional oil developments that increased supply nor did they cause the slowdown in demand. However, they together with the rest of OPEC did control the price by regulating their output. That they are not doing so now is significant.
SAUDI OIL MINISTER: I Don't Care If Prices Crash To $20 — We're Not Budging

So the Saudis "did this" by doing the same thing they have been doing for these last many years?

 

[NobleSavage]

Well KSA didn't exactly do this. They didn't cause the non-conventional oil developments that increased supply nor did they cause the slowdown in demand. However, they together with the rest of OPEC did control the price by regulating their output. That they are not doing so now is significant.
SAUDI OIL MINISTER: I Don't Care If Prices Crash To $20 — We're Not Budging

So the Saudis "did this" by doing the same thing they have been doing for these last many years?

We covered all this speculation in this thread. http://talkfreethought.org/showthread.php?3252-US-oil-settles-at-63-05-lowest-since-July-2009

1) The shale plays in the US highly leveraged on junk bonds.

2) The oil game includes a lot of BS and bluffing. OPEC and the Saudis excel at this.

3) Oil price will rise again.