Price of Oil

[Rtrorkt]

Can someone learn me as to why low oil prices are a bad thing as I keep seeing on the business websites? Reading CNBC online they are essentially saying that Chian and cheap oil are the reasons my 401k is taking a hit.

Seems that cheap oil gives all of us regular folk some extra spending money and since economists say the consumer drives the economy it would seem to follow that cheaper oil overall is a good thing for the economy. I suppose Saudi, Iran, Russia and Venezuela would disagree.

[aschen]

tons of mfg jobs related to oilfield, as well as actual drilling and processing labor jobs

these are supported by lots of high paying and high skilled jobs as well.

Around here low oil prices are a bad thing, but I am not in an exactly typical area

[Gogar]

Imagine you lived in Idaho and you grew potatoes.

To break even in your business you needed to make $1.00 a bushel. Not make money, just break even.

Then imagine that Saudi Arabia, Iraq, and then Iran had huge warehouses full of potatoes and decided to sell them for $.50 a bushel.

Then imagine that the US Government also had a huge warehouse full of potatoes and decided they didn't really 'need it anymore', because potatoes were so cheap. So they also flood the marketplace with cheap potatoes.


You go bankrupt because you can't afford to sell potatoes for $.40-.45 a bushel, and you lay off your 100 employees and sell all your tractors, and lose your land and your house.

Then some guy in the city says "I don't understand why cheap potatoes are a problem, I love potatoes! I bought 500 pounds of potatoes this week for like, $2.50!!! Awesome!

[recycled sixtie]

Similar to Texas we in Alberta are oil country. They say that about 100,000 jobs are being lost here due to the low price of oil. Probably Provinces outside of Alberta are benefiting from the low price of oil. Being a resource country Canada's $ is at record low 's compared to the US$ hence the tendency to stay home as the US$ is so high in comparison.

[jyl]

Is it oil, or is it China?

Might be interesting to compare charts: S&P, crude, and China market. Look for the patterns.

[MBAtarga]

Lower demand (and therefore lower prices) on oil (and by-products) means the economy is slowing. Companies are not expanding and using more energy, transportation demands are lower which implies fewer products are being shipped (and therefore made), which means that workers aren't hired to make said products, etc. All that means lower corporate revenue and profit, hence your 401k that invests in those same corporations will go down with stock prices.

[sammyg2]

In the long run, I believe low priced oil is good for everyone.
in the short run any significant instability can hurt businesses and economies as they have to adjust and contract.

[strupgolf]

5 years ago, Saudia Arabia said they want high oil prices. The US was at a highpoint of oil production because of fracking. The Saudia's said, we'll wait until the glut gets big, as in now. Now since most of our, the US production, has shut down due to to low prices, the Saudie's have, or will have exactly what they want. Then they will again have us by the balls. Just wait.

[sammyg2]

Originally Posted by Gogar

Imagine you lived in Idaho and you grew potatoes.

To break even in your business you needed to make $1.00 a bushel. Not make money, just break even.

Then imagine that Saudi Arabia, Iraq, and then Iran had huge warehouses full of potatoes and decided to sell them for $.50 a bushel.

Then imagine that the US Government also had a huge warehouse full of potatoes and decided they didn't really 'need it anymore', because potatoes were so cheap. So they also flood the marketplace with cheap potatoes.


You go bankrupt because you can't afford to sell potatoes for $.40-.45 a bushel, and you lay off your 100 employees and sell all your tractors, and lose your land and your house.

Then some guy in the city says "I don't understand why cheap potatoes are a problem, I love potatoes! I bought 500 pounds of potatoes this week for like, $2.50!!! Awesome!

Or u could spin it in a more reasonable, accurate and real way:

Imagine you lived in Idaho and you grew potatoes.

To break even in your business you needed to make $1.00 a bushel. Not make money, just break even.

Then imagine that Saudi Arabia, (not Iraq), then Iran had huge warehouses full of potatoes and decided to sell them for $5 a bushel. But we imported most of our potatoes from Mexico and Canada.
They formed a cartel that met and allocated maximum production shares for each country, all designed to hold back production and barely meet the demand and drive the price up.

That drove up the price artificially and you started making money hand over fist. Life was good, you were making record profits.
But the consumer was getting screwed, crying about $2 a gallon potatoes, then $3 a gallon, then $4, then $5 a gallon. that was a lot of scratch just for a gallon of potatoes.
REMEMBER?

everyone was PISSED AND screaming about gouging, saying the gubmint should raise taxes on just you because you were making too much money on those potatoes.

Then imagine that the US Government also had a huge warehouse full of potatoes AND THEY DID NOTHING BECAUSE THE US GUBMINT HAS ABSOLUTELY NOTHING TO DO WITH THIS DISCUSSION except they take $2 out of every $5 the potato seller makes.
They are not affecting the market, and they really don't have enough to make much of a serious difference anyway. Not long term.


So the price falls back to almost where it should be, even though it's higher and the natural equilibrium would set it at.

So you have to adjust and tighten your belt and make a living on the smaller profits you survived on 10 years ago.
You could do it then, you should be able to do it now.
You have to make it on $2 a bushel when you used to make it on $1 per bushel.

Or find a different line of work if you are not good enough to compete.

Then some guy in the city says "I don't understand why $3 a gallon gas is a problem, it's still pretty expensive. I can remember when it cost 33 cents!!!!!
I wish the gubmint didn't take such a large chunk of it.

Did I mention that for the first time we could make all the potatoes we need and not have to import ANY from the middle east at all?
That was a goal of our country for 40 friggin years IIRC.




Remember, the companies this thread is getting all communistic and defending are ExxonMobil, Shell oil, BP, Phillips 66, etc.

The same companies that were EVIL 5 years ago.

REMEMBER?

[sammyg2]

Originally Posted by strupgolf

5 years ago, Saudia Arabia said they want high oil prices. The US was at a highpoint of oil production because of fracking. The Saudia's said, we'll wait until the glut gets big, as in now. Now since most of our, the US production, has shut down due to to low prices, the Saudie's have, or will have exactly what they want. Then they will again have us by the balls. Just wait.

Saudi will not be able to hold out much longer, they are about to implode.

And who said that we shut down most of our US production?

[sammyg2]

Originally Posted by MBAtarga

Lower demand (and therefore lower prices) on oil (and by-products) means the economy is slowing. Companies are not expanding and using more energy, transportation demands are lower which implies fewer products are being shipped (and therefore made), which means that workers aren't hired to make said products, etc. All that means lower corporate revenue and profit, hence your 401k that invests in those same corporations will go down with stock prices.

But we are not talking about lower demand. Demand is up, but the supply is up even more creating a glut!


So every company out there realizes they are saving money on fuel and transportation costs, so they can finally afford that new giant oven or conveyor system or fleet of trucks or can lease that building across the street and higher a new crew and double production.

Lower energy costs BOOSTs the economy, creates MORE jobs.

[Chocaholic]

When quarterly Exxon (or She'll, BP) profits, yes profits exceeded $90M. Yes quarterly. We all paid dearly with little choice than to feed their price fixed gluttony. Not losing sleep now that a dose of reality has reared its ugly head.

[Shaun @ Tru6]

Remember the MBS, CDO and CDS driven worldwide economic meltdown 8 years ago? What's going to happen to all of the global investments in Oil Production/Fracking/Natural Gas Production made at a time when oil prices were through the roof AND China and India were growing by high single/low double digits with now 18 months of decreasing oil prices?

How will the risk taking/betting on and against those investments using complex financial instruments play out when energy companies start to declare bankruptcy in 2016?

How will the losses be covered? Who will cover them?

Dovetailing that, what happens when China goes into recession which I think it will by the end of 2017 unless the government cooks the books.

Market instability defined.

[Jrboulder]

The reason it's a bad thing is that America has been a huge player lately. If we imported all of our oil then almost no one would have their toes stepped on but because domestic production has become such a big deal the network that was involved in oil production became pretty large and intertwined with the rest of the economy and it has/had a lot of relatively high paying jobs. Not only do you need to poke holes in the ground but you have to make large quantities of drill pipe, frack sand, pumps, pipelines, railroad cars, new and rebuilt railroad infrastructure and really any other industrial equipment. All of that takes tons of raw materials as well as workers and engineers in some of the more undesirable parts of the country. It's almost like the end of a war.

[Instrument 41]

Being in the upstream oil and gas world the layoffs have been huge from Major oil companies all the way down to the local suppliers and service companies. A point to make is the numbers of investors and the smaller banks that have lent money out to oil out of the ground. I believe that we'll start seeing some of these folks going belly up.

[Scott R]

One of my fall interns today: "Why don't oil workers just go and make solar panels?" She has so much to learn before May.

[pavulon]

Williston, ND real estate prices will tell the tale.

[aigel]

Other areas of businesses go through cycles on a regular basis, i.e. the semiconductor industry or housing. It may be time the oil guys get a taste of the real world out there.

Short term this may be bad, but long term low oil prices will be a huge boost for the economy - if it holds up reasonably well.

G

[Arizona_928]

Originally Posted by Scott R

One of my fall interns today: "Why don't oil workers just go and make solar panels?" She has so much to learn before May.

Wow. Need a summer intern?

[jyl]

Originally Posted by aigel

Other areas of businesses go through cycles on a regular basis, i.e. the semiconductor industry or housing. It may be time the oil guys get a taste of the real world out there.

Short term this may be bad, but long term low oil prices will be a huge boost for the economy - if it holds up reasonably well.

G

Isn't boom and bust a well known thing in the oil industry?. For the more veteran participants, anyway?