Oil's fall picks up steam: Good for everyone, except energy producers

[FBaggins]

Well... I wouldn't say "everyone"...

The stock market was enjoying a relief rally Tuesday morning but there's no reprieve for oil prices. Brent crude was down 2.6% to $86.53 per barrel in recent trading after hitting a four-year low Monday while West Texas Intermediate was down 1.7.% to $84.31, a nearly two-year low.

Today's decline appears to have been triggered by the International Energy Agency's cutting its demand forecasts for 2014 and 2015 by 200,000 and 300,000 barrels per day, respectively. The IEA cited both supply and demand factors in lowering its estimates, a nod to the deadly combination (for energy prices) of increased global production during a time of decelerating global growth. Furthermore, the energy watchdog says "most [production] remains profitable at $80 a barrel Brent," suggesting "further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift."

...snip...

Moving from economics to geopolitics, one critical backstory to all this is the apparent split within OPEC, which is still responsible for about one third of global production. Saudi Arabia has pledged to keep production levels high and recently cut prices to European and Asian buyers, despite the recent decline in prices. Kuwait, Iraq, Iran and the UAE have followed the Saudis' lead while Venezuela is calling for a special meeting to discuss prices and Iran is calling for production cuts, The Times reports. A few theories here to explain the thinking behind what the Arab producers are doing:


•Taking the long view, the Saudis are trying to crimp America's fracking revolution by driving prices down to where it becomes uneconomical for many producers. Some experts said production would slow after WTI broke $90 but The Times says "companies that have led the boom in drilling across North Dakota and Texas are insulated from the declines for the time being, with the break-even levels for investments around $60 a barrel."
•America and the Saudis have a common enemy in the Islamic State, aka ISIS. In exchange for American military support against ISIS, the Obama administration got Arab oil producers to promise to keep production high and prices low. In addition to helping U.S. consumers, this has the added benefit of putting additional pressure on Vladimir Putin's regime, which is overwhelmingly reliant on energy.
http://finance.yahoo.com/news/oil-s-fall-good-for-everyone--except-energy-producers-143808307.html

[JayhawkSD]

1. No, it's not good for anyone. It's bad for everybody.

Oil prices are falling because the world's economy is slowing down. The price fall is accelerating because the world economic slowdown is accelerating. US politicians are claiming that the US economy will be unaffected, and will continue to recover despite this slowdown. They are wrong.

[FBaggins]

2. The "world economy" doesn't move in lockstep.

A slowdown in global demand could lower crude prices enough to stimulate the US economy.

Also... it isn't terrible for those economies that are struggling in Europe. It's certainly better than their recent contraction that coincided with far higher crude prices.

[JayhawkSD]

3. Dream on. I hope it doesn't hurt too bad when reality hits you in the face. nt

[Nihil]

5. Disagree - it is good for everybody and everything.

Anything that puts a crimp in the ignorant assumption that exponential growth
is (a) good and (b) infinite in duration is a damn good thing as it might (just might)
wake up enough people from their insular selfish attitudes before the crunch
really cuts in.

[GliderGuider]

4. Low Oil Prices: Sign of a Debt Bubble Collapse?

Low Oil Prices: Sign of a Debt Bubble Collapse, Leading to the End of Oil Supply?

Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford.

If oil prices drop, there is a temptation to believe that this is because the cost of production has dropped. Over a long enough period, a drop in the cost of production might be expected to lead to lower oil prices. But we know that many oil producers are finding current oil prices too low. For example, the Wall Street Journal recently reported, “Royal Dutch Shell CEO: Can’t deny returns are too low. Ben van Beurden prepared to shrink company in order to boost returns, profitability.” I wrote about this issue in my post, Beginning of the End? Oil Companies Cut Back on Spending.

In the short term, low prices are likely to signal that less of the commodity can be sold on the world market. Commodities such as oil and food are very desirable products. Why would less be needed? The issue, unfortunately, is affordability. Affordability depends largely on (1) wages and (2) debt. Wages tend to be fairly stable. The likely culprit, if affordability is leading to lower demand for desirable products like oil and food, is less growth in debt.

I don't know about the "end of oil supply" bit, but I wouldn't be at all surprised to find the recent general slump in commodity prices to be a harbinger of bad times to come.

[NickB79]

6. Anyone know what the cutoff is for the Bakken field profitability?

IE, how much does oil have to cost to keep North Dakota oil flowing and returning a profit, given it is much more difficult to extract and transport than conventional oil wells.

Oil prices fall enough, and the Bakken bubble might go "POP!"

[eridani]

7. Wind Power Pushes Down Electricity Prices in Nordic Countries, Ending Profitability of Fossil Fuels

'
http://readersupportednews.org/news-section2/312-16/26450-wind-power-pushes-down-electricity-prices-in-nordic-countries-ending-profitability-of-fossil-fuels

The arrival of wind power on a large scale has made this role less relevant and has pushed electricity prices down, eroding profitability of fossil power stations.

"Demand for coal condensing power in the Nordic power market has decreased as a result of the economic recession and the drop in the wholesale price for electricity," state-controlled Finnish utility Fortum said, booking an impairment loss of about 25 million euros($31.67 million).

Nordic wholesale forward power prices have almost halved since 2010 to little over 30 euros per megawatt-hour (MWh) as capacity increases while demand stalls on the back of stagnant populations, low economic growth and lower energy use due to improved efficiency.

Short-run marginal costs (SRMC) of coal generation were 28.70 euros per megawatt-hour (MWh), the Nordic power regulators said, while costs of gas-fired power generation were much higher, at 53 euros/MWh in 2013.

"The Nordic system price will likely more often clear well below the production cost for coal fired power production," said Marius Holm Rennesund Oslo-based consultancy THEMA.

"This will, in our view, result in mothballing of 2,000 MW of coal condensing capacity in Denmark and Finland towards 2030," he added.

Adding further wind power capacity at current market conditions could lead to power prices dropping towards as low as 20 euros per MWh, the marginal cost for nuclear reactors, Rennesund said.