<![CDATA[Hedgehogs.net: '' related content]]> http://www.hedgehogs.net/tag/chronology+of+world+oil+market+events?view=rss http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11436923/fall-in-oil-prices-temporary Fri, 19 Dec 2014 03:49:37 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11436923/fall-in-oil-prices-temporary <![CDATA[Fall in oil prices 'temporary']]> 11436923 http://www.hedgehogs.net/pg/blog/asiablues/read/11435964/the-russia-mexico-opec-failed-agreement-on-production-cuts-was-short-sighted Wed, 17 Dec 2014 02:43:26 +0000 http://www.hedgehogs.net/pg/blog/asiablues/read/11435964/the-russia-mexico-opec-failed-agreement-on-production-cuts-was-short-sighted <![CDATA[The Russia, Mexico & OPEC Failed Agreement on Production Cuts was Short Sighted]]> By EconMatters

Vienna Short-Term Greed

Remember several weeks ago when oil was still trading around $75 a barrel, and OPEC was deciding upon a Production cut and Russia and Mexico went to Vienna and a deal was being discussed regarding a combined production cut so that Saudi Arabia wouldn`t have to take the brunt of the cut by themselves? Looking back this has to be one of the most shortsighted business decisions of recent history, and ironically it will end up costing them more money and doing more harm to their countries balance sheets than losing a little market share to the US shale Industry for a couple years until it runs its course.

Let`s Have A Price War!

I get the simple reasoning, there is a lot of that going on these days. In fact most of Wall Street and Modern Financial theory lacks sophisticated logical reasoning found in other disciplines like Philosophy, Technology & Science. So the simple reasoning by the OPEC decision not to cut production is that “Why should we be the ones to cut production and possibly lose more market share to the US Shale Industry”? Why not talk down price, give the speculators more fuel to work and pressure prices further causing the US Shale players to cut back production, or go out of business entirely, and then they( mainly the Saudi`s who have the lowest production costs) can gain market share after the short term inevitable pain (however long that ends up being).

Sophisticated Cost Benefit Analysis

There are a couple of reasons why this strategy is not the best strategy they could have chosen, first of all the US is a diversified economy, sure the Shale Industry will be hurt with lower oil prices, some of it may even go out of business, or be bought up by larger companies in the US. However, the rest of the United States is going to benefit from lower fuel costs, and the US economy as a whole is going to better off from lower oil and fuel prices and flourish. Whereas the OPEC countries are not diversified, their main source of revenue is oil, so not only do they get lower revenue from lower oil prices; but this just doesn`t hurt their budgets, their balance of trade, or the oil sector of the economies, it hurts their stock market, it hurts their financial sectors, in short every part of their economy is affected from building and real estate stocks to restaurants and the entire supply chain that relies upon healthy oil prices to fuel its economy. Most of these countries subsidize fuel so the consumer in these countries doesn`t really even benefit that much with lower fuel costs as a result of the drop in oil prices like net consumer nations.

Throw Russia and Mexico in this category as well when one evaluates not just the lost revenue due to lower oil prices, but look at how Russia is spending a ton of resources trying to prop up its currency, and the entire system is under considerable distress. So weigh in the lower oil price on the currencies as well in a cost benefit analysis of not agreeing to production cuts and this being a good overall strategy to employ. Did Russia factor in the Inflation costs on its country when making the decision to walk away from production cut talks?

Evil Oil Speculators Can Switch Sides

But there is an even bigger point OPEC didn`t consider because it has been a long time since the oil market has been weak, and frankly modern energy speculation in electronic markets wasn`t around in the 1980`s like it is today. Remember how OPEC used to always blame really high oil prices on the speculators, well they didn`t think about the magnitude of waiving the white flag, and letting these same speculators go to town on their primary business product. I guarantee you they didn`t see oil prices dropping this fast, and hurting their revenue streams this much. But there is a bigger point, oil is an asset, and you don`t just give it away for free, this isn`t a fall inventory sale at Macy`s, it has long-term value, if you aren`t getting a viable cost, you hold onto the asset, as it is a finite asset, and has greater long-term value in the future. OPEC, Russia, and Mexico are essentially wasting their limited resources, giving these finite resources away to consumer countries at a sharp discount, this is just bad business strategy, it cheapens the asset`s value. De Beers in the Diamond Industry understands this concept, this is what cartels do, they control price, and they never sell or cheapen their assets in a public manner. No business should ever willingly allow shorts to attack their product and make it less valuable, this is just poor business strategy. OPEC had created quite the illusion that their asset was valuable, worth over a $100 a barrel, consumers were willing to pay this high price, the last thing you do as a cartel is alter this perception in the public. It is just a poor branding strategy, Apple would never do this!

Best Option for OPEC in Hindsight

This is what should have happened before the OPEC meeting, Russia, Mexico and OPEC members should have agreed to cut back global production by 2 million barrels per day, when you spread it out it isn`t that much, and they would have all netted more revenue from prices higher in a stabilized market around $100 a barrel (almost twice what it is today). And yes it would make a difference shoot there is probably $25 bucks worth of price regarding shorts in the oil market right now! Think if the shorts covered on a production cut of 2 Million Barrels Per Day at $75 a barrel in WTI, this probably gets WTI back to $100 in two weeks. There is a lot of value in maintaining a sleepy range bound market, the last thing OPEC should have wanted to do was Draw Attention to Sharks that Oil was Ripe for taking down, as they were going to attack their currencies, stock markets and anything else they could find to exploit as well in the feeding frenzy.

Remember oil is a commodity, it has no real value, as we have seen it can be $55 or $105 on no real significant difference in supply, it is all about perception and market sentiment, in other words marketing or branding of the commodity. But look at all the damage to the Cartel member`s stock markets, their currencies, the confidence of their people; and the short-sighted nature of their failure to cut production looks horrific in hindsight despite the public rhetoric of OPEC members. Plus you have more of your primary asset that you can sell in the future when prices are much higher. Let the US Shale producers waste all their asset right now, who cares if they gain 5% more market share on a temporary basis? These people let short-term greed, and a lack of understanding of basic finance and business strategy cost them a whole lot of money when all is calculated with this experiment. “Why should we be the one to cut” because it is in your best interests to cut – the failure here was thinking about their situation in relation to the US Shale Industry. This is completely irrelevant, what is in your best short-term and long-term best interests? It does OPEC no good to hurt the US Shale Industry; or Russia, Mexico and OPEC to avoid production cuts if it hurts them more than the alternative option of production cuts. This should be their sole focus, they got distracted in their cost benefit analysis by thinking about the US Shale Industry and the whole short-term market share issue! Moreover, this is what Cartels do, this is why OPEC formed in the first place to protect its primary asset, control production, and to promote and maintain the brand status of this commodity! Don`t let ego and pride get in the way of a sound business decision! What is the best business decision keeping more of your primary and limited asset, and overall still getting more revenue, helping your economies, stock markets, currencies, and maintaining the illusion that you own a valuable and limited commodity in oil?

Yes Branding Matters in the Oil Market – It`s time for OPEC, Russia & Mexico to start acting like a Cartel – Remember the Oil Market can be Commoditized or Branded – The Answer to “Why Should You Be The Ones To Cut” is because you don`t have Diversified Economies

De Beers even goes so far as buying up black market supply and taking it off the market to control the Diamond Market, the last thing De Beers or Apple is going to do is cut their highly branded product in half to win some market share, you get lower margins for your product. Remember Russia all you had to do was agree to take a small share of the pain of a production cut, sure looks like the best option right now, considering the fact that you had to go to the extreme of a 17% interest rate or bailout Rosneft, it would have been much cheaper just to take a 400,000 barrel per day Oil Production Cut, maybe even less of a Production Cut!

This Problem has some characteristics of a Prisoner`s Dilemma/Nash Equilibrium Scenario for OPEC regardless of what happens with the US Shale Industry OPEC, Russia & Mexico are always going to be Worse Off by Not Agreeing to Production Cuts

© EconMatters All Rights Reserved | Facebook | Twitter | Email Subscribe | Kindle

http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11435452/how-countries-around-the-world-are-coping-with-falling-oil-prices Sun, 14 Dec 2014 11:59:24 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11435452/how-countries-around-the-world-are-coping-with-falling-oil-prices <![CDATA[How Countries Around The World Are Coping With Falling Oil Prices]]> Every week, The WorldPost asks an expert to shed light on a topic driving headlines around the world. Today, we look at the impact of a steep decline in oil prices.

On Friday, the price of benchmark crude oil dropped to new five-year lows.

The price of oil has been plummeting for months, leaving oil-producing nations around the world aghast at their sinking revenues. Poor global economic growth has cut demand, while the U.S. is producing oil faster than ever recorded.

Prices fell further last month after Saudi Arabia and its Gulf allies blocked an effort at the Organization of Petroleum Exporting Countries to reduce production levels in order to boost the price of oil.

The OPEC episode shows that it's not only economists and oil barons who are concerned about the price crash. Many major oil producers are embroiled in domestic and international political crises, and political analysts are watching closely to see how these countries react as revenues continue to decline. Iran, struggling to balance its budget amid falling prices and international sanctions, this week blamed longtime rival Saudi Arabia for a “conspiracy against the interests of the region.” Russia recently warned that it will fall into recession in 2015.

“Optimists think economic pain may make these countries more amenable to international pressure,” The Economist explains. “Pessimists fear that when cornered, they may lash out in desperation.”

The WorldPost spoke to Jason Bordoff, director of Columbia University’s Center on Global Energy Policy, about the political fallout of declining oil revenues around the world.

Why did Saudi Arabia reject production cuts at the OPEC meeting?

Saudi Arabia has two options: They can cut their own production and therefore lose revenue and market share, or they can just let the price fall, thinking that the higher cost of production leads to a drop in supply on its own. Saudi Arabia is signaling that if OPEC needs to cut production levels, they want other exporters who are not members of OPEC to cut their production as well.

What’s changed fundamentally in the market in the last few years is the dramatic increase in U.S. oil production. There are few other instances in history when oil production has grown so quickly. I think we’re still learning a lot about U.S. oil production. Other oil producers are opting to wait and see what happens, and then take a decision.

Often in the past, OPEC has only agreed to production cuts after a few meetings and an increased sense of panic. It is certainly possible that the oil price will decline further and U.S. production will keep growing, and OPEC will have to take action.

If the price keeps falling, could this backfire on the Saudi regime by undermining stability in the country?

Saudi Arabia has very costly social programs and welfare spending. I imagine the Saudi regime is concerned about the possibility of instability. But they are in a better position than other producers. They have huge financial reserves. If they decide to run a deficit for a while, they could handle it.

What about the other major oil-producing nations?

There are very significant risks to the stability of these countries. Nigeria and Venezuela are going to be in an extremely painful position over the next year. Their economies have already suffered. Venezuela supports a subsidized oil price for regional allies, which is pushing them towards the risk of default.

Do you think trouble in the oil markets could pressure Iran to reach a deal over its nuclear program, or curb Russia's military ambitions?

Russia is facing extreme pressure from the price collapse as well as international sanctions. The ruble has already fallen sharply. Iran is also suffering from sanctions as well as the oil price. I hope the low price will provide an opportunity for the West to exert greater leverage to push for agreement with Iran and Russia, but it's hard to say how these countries will respond.

As Iran continues to negotiate with the international community over its nuclear program, the sharp fall in the price of oil is an additional reason for accommodating sooner rather than later. The flip side is that the lower oil price could make it easier for the U.S. Congress to ratchet up sanctions on Iran.

[Russian President] Vladimir Putin has shown much less willingness to move forward. I don’t think that we’ve seen signals that he will pull back from aggression in Ukraine. His popularity remains high despite the economic pain.

What do you expect to happen next to the price of oil?

It’s very hard to predict. If you had asked me two months ago I would not have predicted where we are today.

I don't think we’re yet at the bottom price. It will fall further, and then begin picking back up again in the next year. I think demand will pick up because of the lower price, and supply will grow less quickly. But how fast it will rise, and to what level, is hard to say.

This interview has been edited for clarity.]]>
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11434299/how-crude-oils-global-collapse-unfolded Sat, 13 Dec 2014 23:40:01 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11434299/how-crude-oils-global-collapse-unfolded <![CDATA[How Crude Oil's Global Collapse Unfolded]]> 11434299 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11433269/here-is-a-simple-way-of-seeing-who-gets-screwed-most-as-oil-tumbles-uso Sat, 13 Dec 2014 18:23:33 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11433269/here-is-a-simple-way-of-seeing-who-gets-screwed-most-as-oil-tumbles-uso <![CDATA[Here Is A Simple Way Of Seeing Who Gets Screwed Most As Oil Tumbles (USO)]]> Oil is crashing. On Thursday, WTI crude oil was falling again, moving back below $61 a barrel. 


http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11433041/wonkblog-the-basic-reason-oil-keeps-getting-cheaper-and-cheaper Sat, 13 Dec 2014 17:09:36 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11433041/wonkblog-the-basic-reason-oil-keeps-getting-cheaper-and-cheaper <![CDATA[Wonkblog: The basic reason oil keeps getting cheaper and cheaper]]>

http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11432931/cheap-gas-could-kill-us-oil-export-ban Sat, 13 Dec 2014 16:49:29 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11432931/cheap-gas-could-kill-us-oil-export-ban <![CDATA[Cheap gas could kill U.S. oil export ban]]> ]]> 11432931 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11432828/norwegian-crown-falls-after-central-bank-rate-cut-and-oil-drop Sat, 13 Dec 2014 16:11:25 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11432828/norwegian-crown-falls-after-central-bank-rate-cut-and-oil-drop <![CDATA[Norwegian Crown Falls After Central Bank Rate Cut and Oil Drop]]>

The Norwegian crown sank to its weakest in more than a decade against the U.S. dollar on Friday, a day after Norway’s central bank unexpectedly cut interest rates and as oil prices slid to a 5-1/2 year low.


http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11432185/opec-making-the-best-of-a-low-price Sat, 13 Dec 2014 11:09:25 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11432185/opec-making-the-best-of-a-low-price <![CDATA[OPEC: Making the best of a low price]]> AN EFFECTIVE cartel requires three things: discipline, a dominant market position and barriers to entry. The Organisation of the Petroleum Exporting Countries lacks all three. Its members cheat on their quotas. It supplies only 30% of the world’s oil—too little to exercise control. New producers abound.That is the backdrop to OPEC’s decision last month to make no attempt to bolster the oil price, sending it below $70 a barrel—a near 40% drop since June. Saudi Arabia, its most influential member, could have sent the price up single-handedly by deciding to pump less. Unlike cash-strapped oil exporters such as Venezuela, the kingdom can afford self-denial: it has savings of $900 billion.But Saudi Arabia can also weather a low price: its production costs are $5-$6 a barrel—the lowest in the world. Moreover, history suggests most of the gains from any cut in its output would go to other producers, who would sell their oil for more while increasing their market share. Saudi Arabia did try the tactic in the early 1980s, cutting its output by three-quarters from 10m b/d in 1980 to under 2.5m in 1985-6. The result was higher prices, but also a boom in investment, and then production, in places such as Britain and Norway.Trying to save OPEC with such tactics could be even more dangerous now. Keeping the price up would be good news for frackers, speeding the spread of that technology...

http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11431770/oil-falls-to-new-fiveyear-low Fri, 12 Dec 2014 18:09:02 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11431770/oil-falls-to-new-fiveyear-low <![CDATA[Oil falls to new five-year low]]> 11431770