Quantitative Easing Saudi Style
 

As we all know the decline in the price of oil to roughly $60 a barrel is due to the Saudi decision to keep on pumpin the Bubblin Crude in spite of a decline in world demand for Texas Tea. So as previously stated there are a number of agendas at play in the Saudi decision, including thwarting Iranian, Russian and Fracking Producers ambitions. However the most important is that the Saudi decision is in effect a virtual Quantitative Easing. In that with a decline in energy prices it puts more MONEY back in the pockets of the consumers, which possibly will stimulate the economies of the world.

So the question becomes why is it that the Saudi's would institute a Quantitative Easing program of their own? The answer is that they are afraid that the Global economy would slip in recession in 2015. So what does this Saudi determination mean in relationship to the Federal Reserves and other Central Banks massive provision of liquidity though their QE programs? Here the answer is that all the Central Bankers of the world and all their horses could not put the World Economy back together again. In other words Monetary Policy has failed to restart the world economy.

Here one wonders if the Saudi's consulted with the Worlds Central Bankers before embarking upon their own QE program? If this were the case then it would indicate that the worlds Central Bankers have shot their wad with their QE programs and are in the position of no longer being able to print anymore money for fear of currency implosions and the resulting dislocations.

I think lower fuel prices will eventually trickle down to consumers by way of cheaper shipping cost for food, goods and services. If the prices are still low next Spring, I believe the travel, vacation, and entertainment business will benefit, which will get the dollars flowing, and might create more jobs.
I don't know the real reason for the Saudi QE, unless it would be to run some alternative energy sources out of business, or like you said, to curb the fracking competition. Right now, i'm just enjoying a few extra bucks in my pocket every week, and hope to God that the stock market still acheives new highs for the next few years (401K bonanza).

Interesting perspective Tabs, and make no mistake...lower oil/gas prices trump any QE, tax break, stimulus, etc. by a LONG shot. The cause imo...simple supply/demand and many of the low margin oil speculators have fled the sinking ship. Oil's now much closer to "normal" price levels, and now that they've gotten us used to being bent over the proverbial $100 oil barrel it sure feels good for a change. Whatever the cause....I LIKE it :)

It's simple really. Old School economics... If you can, Destroy your competition.

The Saudis like that the West depends on them for oil.
It's been like that for generations and what they don't want most of all is for their grandchildren to be driving camels again.

But we don't (anymore) and haven't "really" for quite some time...doesn't mean the Saudi's don't impact our prices though imo.

Quantitative easing and the drop in Saudi oil price are two very different things. The former is inflationary (in a normal economy) the other is deflationary (in a normal economy). QE is blatant money-printing which inadvertently and ultimately puts money into the hands of the investment class as is demonstrated by the stock market. Normally, Saudi oil glutting doesn't create more currency but leaves whatever scraps wage-earners have earned to spend elsewhere. However, in this distortd economy, wage-earners are not going to spend that money on consumer goods so much as they are going to try to save it (or pay Obamacare premiums in 2015).

This could lead to signfiicant deflationary pressure triggering even less domestic manufacturing, further reductions in the participation rate and possibly (if this continues through the winter) severe reductions in agriculture output with food shortages.

We shall certainly see.

This. While they are getting less per barrel, they are producing a lot more oil. Most of the competition can't ramp up and down output. They want to kill shale oil. And killing off Russia and other countries that rely on oil for basic functions.

Everyone's favorite socialist country, Norway, will be having a serious decline in revenues...The tiny country is the 8th largest producer of oil.

The problem as I see it with the lower cost of oil is that greed on the part of American business will rear it's ugly head and prices will remain fixed, allowing the corporations to pocket more money, at least in the short term. Case and point, oil prices are falling at a rapid price and that is reflected "at the pump" but the cost of heat fuel remains high as does diesel, essentially the same thing.
Those of us on the bottom rung of the finical ladder will be the last to see any kind of overall benefit.

Rick, usually, there isn't the same demand for Home Heating Fuel as there is this year. But I guarantee that if a refinery can make more money by making diesel, they will try to make as much as they can.

FYI - Diesel is probably higher than it would have been because of the sulfur rules.

If one truly looked at this is geopolitical terms, the Saudi move is good for the west and the non-producing far east & bad for Russia. Other producing nations will suffer as well - the rest of the ME, Canada, Venezuela, Iran & frackers everywhere. Russia - already in a financial bind due to sanctions - will really be in for a hurtin'. The oligarchs just might finally feel the urge to turf Putin over the next year or two.

Ian

Just read where some expect oil to remain at $60/bbl for the next five years...
Imo, what we should be asking ourselves is why it was priced so artificially high for so many years.
My take: Speculators (artificially driving the price up) and corporate profits.
Enjoy the ride over the next few years....

One big difference between lower oil prices and every other "stimulus" program that the government has spent billions on - the lower oil prices will actually put money into the pockets of American consumers. Despite the ridiculous amount of money that the government has infused into the "economy" (i.e. corporate friends), I cannot name a single expense of mine that has dropped. I've always had the belief that putting money into consumers' pockets is the single best way to stimulate the economy. Had they simply cut taxes as opposed to giving billions to their friends, I suspect we would be in a much better place today.

My comment was just one example, lets say for the sake of argument that manufacturing and shipping cost lower because of the lower price of oil, then the over all price of a widget will be lower. If said widget costs $10 to produce, market and distribute before the cost was lowered and the manufacturer mad a net profit of two dollars and after the new, lower price has an final cost of $8 then they stand to double the profit by keeping the price fixed.
The cost of our widgets won't drop in price since the market has already adjusted to a price of $10, increasing their profit and keeping the cost to the consumer the same.
Sure we are saving a few dollars a week on our fill ups, and I do enjoy that, but I really don't see much in a way of overall effect to pricing of goods or services.
Yes I am thinking an a very narrow state of mind but I almost have to, I am not in a position to be free with my limited funds, and have to look at how this directly effects me, and to be honest it really doesn't. I am only saving about five dollars a week and my wife about the same, that doesn't even cover a cheap dinner out for her and I.

It's a conspiracy to put Tesla out of business

Saudi is a influence and not the reason oil prices are down. Oil is a world traded and used commodity and is influenced by many factors and not just one. like fracking in the US which has produced a cheap fuel alternative to oil for electric power here cutting demand in oil. The economic slump in Europe has caused a huge loss of oil demand there. I am sure a lot of oil future traders in the past made some bad decisions to lower the price now. Banks are involved, China's involved and has surpassed the US as the largest importer of oil and has an influence that certainly should not be ignored.
Saudi is almost regulated to a bit player in oil prices. Definitely not in control and is easily eclipsed by these other factors.

Well into tinfoil hat area with this note....and the chances of $60/bbl oil for 5 years is the square root of dick-all.

Considering cost of production outside of ME, natural price is likely in the $85-$90 range. In the event that oil prices were to stay at $60 as you suggest, we are just setting up another bust/boom cycle as investment will drop off radically at $60 for any length of time.

Also will cause repercussions due to impact on some pretty unstable and unsavory regimes. Cornered rats do the darndest things...

Dennis

The Saudis are selling cheap oil to make fracking* unprofitable.
After companies give up on fracking8, oil prices will go back up.

*and other alternatives

Not unless they have a Benz 3 point on their azzes...Saudi have lots of Western corporations in their portfolio..

Corporations passing on savings to consumers?
Not in Canada, no way; bring on the windfall profits.

Need an example? Premium fuel - still 5 bucks a U.S. gallon, here.