OT: At what point are oil prices too low?

[LionJim]

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

 

[wilbury]

I

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

I think they are bordering on it right now.

 

[Howie'81]

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

From a consumer perspective, they can never be too low. It's like a tax cut and good for the economy. I agree that we should invest in nuclear power, but that would have a further downward impact on oil prices most likely, which is fine by me.

 

[Op2]

While really low oil prices may hurt things in the short run I don't see how they can hurt in the long run. Pretend someone today invented limitless free energy. How can it be a bad thing? Maybe it puts some people out of work today but in the long run free or cheap energy does nothing but help.

Also, cheap oil is good today in the sense that it hurts Saudi Arabia. It is a vile regime in many ways, among which is that they export Islamic fundamentalism. Anything that hurts them helps the world IMO.

 

[Ten Thousan Marbles]

cheap gas but not at the expense of jobs. .

What jobs are you concerned about?

Does cheap fuel close the door on creation of other jobs?

Is our choice for the future limited to nuclear vs oil?

Age:
Industry in which employed:
(Just joking on last 2. Making look like an official poll.)

 

[Ten Thousan Marbles]

Also, cheap oil is good today in the sense that it hurts Saudi Arabia. It is a vile regime in many ways, among which is that they export Islamic fundamentalism. Anything that hurts them helps the world IMO.

????
While I don't disagree with your first part, you went off the tracks in the last para.

Are you unaware that it is the Saudi production that is keeping the price of oil down?

 

[Howie'81]

????
While I don't disagree with your first part, you went off the tracks in the last para.

Are you unaware that it is the Saudi production that is keeping the price of oil down?

Maybe, but that's another topic really. If we'd develop our own energy reserves, of which there is a monstrous amount, we wouldn't have to count on the Middle East.

 

[LionDeNittany]

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

If you believe like I do that the majority of Americans spend all the money they earn and can, then low oil will boost the US economy.

More money in the pockets of earners = more spending.
There's even more money in the pockets of non-earners and that again = more spending

There will be a shakeout in the oil industry but mostly in the exploration and fracking parts. Oil consumption will increase and that will help the refiners.

LdN

 

[Ten Thousan Marbles]

Maybe, but that's another topic really. If we'd develop our own energy reserves, of which there is a monstrous amount, we wouldn't have to count on the Middle East.

Maybe?

 

[Michael.Felli]

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

You're joking on the nuclear part, right?

 

[Op2]

????
While I don't disagree with your first part, you went off the tracks in the last para.

Are you unaware that it is the Saudi production that is keeping the price of oil down?

I've read the Saudis are engineering the low prices by producing like crazy thereby lowering the price and trying to break the US shale producers. But I've also read that they're losing money hand over fist in the process. Maybe (hopefully not) they'll win in the end but at least they're long in the short term.

The fact that they even feel compelled to lose money in the short term in hopes of making it up and more in the long term is encouraging to me. They didn't used to have to do that.

 

[Op2]

Maybe, but that's another topic really. If we'd develop our own energy reserves, of which there is a monstrous amount, we wouldn't have to count on the Middle East.

We've developed our energy industry so much that we don't have to rely on the Middle East, or if so then not too much. That's what the Saudis are worried about. There is so much competition against them in energy production nowadays that they're engineering a price war to put competitors out of business. They days of oil producing countries being able to say "Pay our price or else" are finally waning.

 

[Lion84]

We have now become the Saudi Arabia of Natural Gas due to the advances in Fracking Technology so we are near Energy Inpedendent - yes I know the issues real and unproven with Fracking. The concern with oil prices are that they are an indicator of the world economy - when prices get this low that means economies like China are really grinding to a halt and this impacts the U.S. As we have seen today with the Dow (ouch) - don't look at your 401k's for a while. Instability breads distress for the markets - also obviously hurts Energy Companies and their employees.

 

[LionJim]

Not at all. Long term (50-100 years) we'll need it. I just threw that out as a for example. I'm not interested in a nuclear debate, just interested in how oil prices impact us short and long term. Actually it was your stock market post which brought this to mind, even though I didn't go beyond your subject line. I asked, got some intelligent, thought-provoking answers, which are much appreciated. So let's not make this about nuclear power, k?

 

[EdH85]

If you believe like I do that the majority of Americans spend all the money they earn and can, then low oil will boost the US economy.

More money in the pockets of earners = more spending.
There's even more money in the pockets of non-earners and that again = more spending

LdN

Today's retail consumer reports would indicate otherwise. Lowest year of growth since 2008 I believe.

 

[LionDeNittany]

Today's retail consumer reports would indicate otherwise. Lowest year of growth since 2008 I believe.

Yes. There's a delay. Initially some layoffs but longer term will be a huge boost.

LdN

 

[delcoLion]

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

I'm no expert, but I thought that oil was mostly needed in the transportation industry. Cheap oil/low gas prices will mostly affect the hybrid and electric car sales, which, I understand, go down when the price of oil/gas goes down.

Nuclear shouldn't be affected one way or the other with low oil prices. I'm in favor of more nuclear but something has to give on the storage issue.

The main impact of low oil prices seems to be that the fracking/drilling jobs - which pay well - are going down and they will take a lot of things with them in the plunge. Housing/financials...

Lots of bad news on the economic front today, it seems.

 

[Tweedbear]

Removal of Iran sanctions will bring more oil on the market. Read some of the internet articles on market impact.

 

[Ten Thousan Marbles]

I'm no expert, but I thought that oil was mostly needed in the transportation industry. Cheap oil/low gas prices will mostly affect the hybrid and electric car sales, which, I understand, go down when the price of oil/gas goes down.

Nuclear shouldn't be affected one way or the other with low oil prices. I'm in favor of more nuclear but something has to give on the storage issue.

The main impact of low oil prices seems to be that the fracking/drilling jobs - which pay well - are going down and they will take a lot of things with them in the plunge. Housing/financials...

Lots of bad news on the economic front today, it seems.

As we have seen in many recent posts here, we specialize in making lemons out of lemonade.

Our motto: Turn that smile upside down!

 

[cment]

Yes. There's a delay. Initially some layoffs but longer term will be a huge boost.

LdN

I wish i had your optimism

 

[Cletus11]

The entire energy industry is going through a massive changeover. Other than price manipulation by hedge funds, Goldman Sachs, JPMorgan, etc...(which is real and does happen) oil should never get above about $75 per barrell ever again. Because at those levels, the frackers and canadian oil sands make money and thereby can put as much oil onto the market as is needed. In addition, with the amount of natural gas now out there, if oil gets above that, people start converting to compressed natural gas as a fuel as opposed to gas because it makes economic sense.

The next revolution is battery. Both of those technologies have made gigantic advances in the last 5 years to the point of really being a legit way to competitively make power. And the amount of research being done at the PhD type breakthrough level is very large such that I would suspect in the next 5-7 years you will see some more breakthrough's in efficiency and cost of those two renewables. When battery technology is to the point where larger quantities of energy can be stored economically, then you will see solar panels on every roof around as the electric company is no longer required for many.

 

[Class of 67]

My logic says more companies and consumers benefit from low oil prices than are hurt. Whatever the economic situation, it seems some sectors do well and others don't. Currently it's the oil related industries that lose jobs, but airlines, tradesmen, delivery companies and everyone else for whom fuel is a major expense are better off. Whether oil prices are low or not, sustainable energy sources like wind, solar and other technologies that others can't impact are the only long term solutions. And that doesn't even consider that they are cleaner energies, with less adverse impact on health and climate.

 

[Lion78]

Anytime a product goes through significant long term price reduction, it will be good for most consumers and bad for those involved in the industry. Even short term reductions, like this one, can have a ripple both ways. It also isn't good for competing industries (coal, solar, etc.) as the cost differential is minimized.

One of the best things for the industry is this will cause pain for speculators and late arrivals. Both have been burned and will be weeded out of the system. There will always be both, but seeing them hurt will give pause to others wanting to join in.

Look at what, in large part, natural gas has done to the coal industry.

 

[Michael.Felli]

Not at all. Long term (50-100 years) we'll need it. I just threw that out as a for example. I'm not interested in a nuclear debate, just interested in how oil prices impact us short and long term. Actually it was your stock market post which brought this to mind, even though I didn't go beyond your subject line. I asked, got some intelligent, thought-provoking answers, which are much appreciated. So let's not make this about nuclear power, k?

Well, then, don't use the "N" word. No one brought it up, but you. Did you miss that part? Give me your cell phone # and I'll send you a screen shot of your own post.

That aside, I personally believe there's more to this than any of us know. My best gut opinion is that the West (free world) is now going to do everything in their collective power to disrupt the Middle East and force change that way. Just my views.

 

[Howie'81]

Anytime a product goes through significant long term price reduction, it will be good for most consumers and bad for those involved in the industry. Even short term reductions, like this one, can have a ripple both ways. It also isn't good for competing industries (coal, solar, etc.) as the cost differential is minimized.

One of the best things for the industry is this will cause pain for speculators and late arrivals. Both have been burned and will be weeded out of the system. There will always be both, but seeing them hurt will give pause to others wanting to join in.

Look at what, in large part, natural gas has done to the coal industry.

Speculators have never bothered me. For every trade, there are two sides basically betting against each other. They bring liquidity to the markets and that's a good thing.

 

[Lions8286]

The cost of oil directly impacts the bottom line of every manufacturer. There are many variations of the saying that goes...if you have it, a truck brought it. I work in supply chain (transportation) for a small manufacturer. In general, people don't realize that the cost for manufacturers fluctuates with the cost of oil (actually fuel refined from oil). MOST trucking companies have agreements with shippers contingent on the price of fuel. The cost for me to ship a widget from NJ to OH will change from month to month. Right now, I am a hero on the balance sheet, mostly because my cost to transport our products has dropped like a rock. There are other factors too, but the biggest is the current price of diesel fuel.

Research "trucking fuel surcharges" if you want to learn more.

 

[PSU20]

Oil prices are probably too low now for the overall economy. Even though the average driver is saving a lot of money each money on gas, coupled with trucking companies, and airlines, there are many industries such as drillers, bit makers, parts suppliers, hotels, and even banks who are really hurting as a result of these super low oil prices. The hotels can be singled out in areas where oil is the backbone of the economy, e,g, Texas, Okla, S. Dakota, etc. The companies whose economy is tied the oil industry are not borrowing, thus banks also take a hit. Even JP Morgan is feeling the crunch.

 

[BGJeff]

Removal of Iran sanctions will bring more oil on the market. Read some of the internet articles on market impact.

Iranian oil was making it into the market place before this (silly) treaty was put in place. The big hit is the Saudis who are maintaining high production despite much lower demand. Hell, even the US is now exporting oil. Overall, it seems like a feeding frenzy to get the most of the least.

 

[91Joe95]

I'm concerned that this may really screw up employment. I love the cheap gas but not at the expense of jobs. I do also think that sooner or later we've got to invest in nuclear power again and that cheap oil is going to be a drag on such initiatives.

I'm genuinely concerned and curious and hope that this thread will end up being a constructive and informative one for us, not one sent to the TB.

Oil's not just an energy source, its a huge source of raw materials. From a manufacturing standpoint, low prices are a good thing overall. Right now the Saudi's are trying to hurt Iran and Russia because of what they are doing in the Middle East. They also want to hurt the higher cost shale producers to maintain market share, although that has really taken a back seat to hurting Iran in their ideological struggle. Then you've got a weak economy in China and a somewhat soft one in the US. Barring a war or other skirmish to make people jittery and don't expect prices to rise anytime soon. While a few sectors may be hurt, overall low prices are a positive for economic growth.

 

[bdgan]

We've developed our energy industry so much that we don't have to rely on the Middle East, or if so then not too much. That's what the Saudis are worried about. There is so much competition against them in energy production nowadays that they're engineering a price war to put competitors out of business. They days of oil producing countries being able to say "Pay our price or else" are finally waning.

Agree. Countries that depend on oil revenues are producing even more in an attempt to maintain revenue levels at lower prices. But ultimately people will stop producing if they are selling at a loss. Production costs are already above $25/bll for some sources so they will shut down until supply/demand ratio levels out.

 

[Ranger Dan]

This is Opec's plan to kill the fossil fuel businesses in the US and keep us reliant on middle eastern oil. We should have committed to alternative (safe, clean, renewable) energy in the 1970's like we did for the A bomb in the 40s and with the space program in the 60's. Its a compete failure on the part of our political leadership (both Democrat and Republican) that we haven't advanced technology for alternative energy. If anything, I think we've focused more on fossil fuels (shale oil, natural gas).

 

[Op2]

If Iran and Saudi Arabia continue on this collision course for war the price of a barrel of oil will be above $75 before the end of this year. You are also presupposing that the majority of Americans wish to exploit our natural resources in order to fuel economic growth. There is a whole political party dedicated to the notion that our economic growth somehow hurts the rest of the world. How else do explain the fact oil is hovering at such a low price and it has created almost zero real growth for the US economy? We had our lowest level of growth since 2008 last year.

Where did you see that bit about US economic growth? I was under the impression that growth over the past few years, including 2015, hasn't been that bad.

 

[NewEra 2014]

As low as the price goes today, the price will increase much more in the future. What I mean by that is as drilling stops and people are laid off in the industry, it will be that much more difficult to recover production when prices rise again, and that will result in a massive price spike.

Several years ago, producers were able to hedge their production and therefore know that they were going to receive a profitable price for their oil and gas. So, drilling continued even though the spot prices were weak, and oversupply got really high, where it is today. Those hedges have largely expired, so now E&P companies are dead in the water. The smaller ones are typically highly leveraged, and they will go under.

But the production declines in the shale formations are really high. So in the Marcellus, you need to drill a bunch of wells all of the time in order to maintain production. The Marcellus production is already dropping, and it is going to be really tough to restart the drilling cycle once the inventory of uncompleted wells is exhausted. So, expect natural gas prices in particular to get really, really high by the latter portion of 2017. Oil and gasoline prices trade on more of a global level, so they will be more dependent upon the Asian economies than natural gas prices.

 

[ForesterGump]

One of the best things for the industry is this will cause pain for speculators and late arrivals. Both have been burned and will be weeded out of the system. There will always be both, but seeing them hurt will give pause to others wanting to join in.

You can always speculate to the short side. You'll never get rid of speculators, especially when money is cheap.

 

[Beech Cricker]

The cost of oil directly impacts the bottom line of every manufacturer. There are many variations of the saying that goes...if you have it, a truck brought it. I work in supply chain (transportation) for a small manufacturer. In general, people don't realize that the cost for manufacturers fluctuates with the cost of oil (actually fuel refined from oil). MOST trucking companies have agreements with shippers contingent on the price of fuel. The cost for me to ship a widget from NJ to OH will change from month to month. Right now, I am a hero on the balance sheet, mostly because my cost to transport our products has dropped like a rock. There are other factors too, but the biggest is the current price of diesel fuel.

Research "trucking fuel surcharges" if you want to learn more.

Bingo...and railroads have fuel surcharges, too.

Look at plastics for which resin is the primary raw material. Oil cost directly impacts the cost of resin. Think about how many things you purchase that are plastic.

 

[NICNEM_PSU80]

Iranian oil was making it into the market place before this (silly) treaty was put in place. The big hit is the Saudis who are maintaining high production despite much lower demand. Hell, even the US is now exporting oil. Overall, it seems like a feeding frenzy to get the most of the least.

I think you need to check that statement about exporting oil. In reality I am fairly certain that we still import oil. That said, we may be exporting refined products such as gasoline. Big difference. We are just doing a value add to raw material that may or may not be imported. This is a major reason for the XL pipeline. We take in raw material from our northern border region and Canada, pipe it down to the gulf, refine it and make money on the refinement process.

 

[LafayetteBear]

The airline companies are killing it right now. I heard on the radio yesterday that they had a collective profit of something like $18 -$19 billion last quarter. Trucking companies have got to be doing well also. Not so good for the oil companies, though.

 

[vacationdoctor]

Maybe, but that's another topic really. If we'd develop our own energy reserves, of which there is a monstrous amount, we wouldn't have to count on the Middle East.

We cannot develop any reserves with prices this cheap. Companies cannot make a profit because it costs more to get it out of the ground. Have a look at our "booming" shale industry. Even the hookers cant make a living out there anymore ; )

 

[olelion]

If you look at historical GDP's (any country) you'll see an almost perfect correlation between energy consumption and GDP. As energy prices fell most economies would thrive. But, that was in the days when the price of oil was pegged to the cost of the marginal producer. Saudis game on price is backfiring. The price of oil is now being strongly affected by a lack of demand. Lack of demand, equates to low economic activity. Just a few years ago, it was felt that the equilibrium price of oil was about $80/bbl. That price was harmonious for both producing economies and consuming economies. The equilibrium price today is probably not much different.

 

[Lions8286]

Bingo...and railroads have fuel surcharges, too.

Look at plastics for which resin is the primary raw material. Oil cost directly impacts the cost of resin. Think about how many things you purchase that are plastic.

And something I didn't mention...retailers. The big retailers aren't really retailers in the classic sense. They are experts in supply chain. What percentage of the total cost of that new refrigerator is transportation cost? I'm guessing 15-20%.