Oil down 6% today, Brent at $71.50 versus $110 a few months ago. 5yr low is $70 and it could go through that level as OPEC votes to maintain production. Lots of politics here as Russians highly dependent upon oil revenue and under pressure from sanctions over Ukraine too.
I know most of the price of petrol is tax and duty and I strongly suspect the various cancelled / delayed tax rises will be re-instated but I wonder how much of these falls we'll actually see at the pumps ? Should be 20% pump price fall vs high's.
The Energy companies will talk about having locked in prices but there must be pressure on for cuts there too.
It would appear to be a deliberate ploy by OPEC to throttle the US shale industry.
I wouldnt necessarily call it "throttle", more the joy of markets at work - even one in which a cartel has such a big stake.
Well throttle is my word, what word would you use ?
"bid down"
It depends on whether you mean throttle in the sense to strangle and choke, or throttle in the sense to regulate the flow of fuel...
I'm off to bid down the kids. 🙂
Some say it's a deliberate ploy. It makes life very uncomfortable for Putin.
Well that sounds like a fancy term used by economists, I'm a building worker, throttle sounds fine to me !
It makes life very uncomfortable for Putin.
Surely that depends on how easy/cheap Russian oil is to extract ? I have no idea the cost of extracting Russian oil.
It's definitely bad news for difficult/expensive oil extraction such as shale and North Sea oil.
[i]"Every decrease by a dollar is a negative for the North Sea"[/i]
but I wonder how much of these falls we'll actually see at the pumps ? Should be 20% pump price fall vs high's.
So around say 145p/l to 120p/l? Like has happened?
Bear in mind a lot of the fuel price is fixed by tax, if oil was free it'd still cost 58p/l in tax. So a 20% drop in oil prices won't mean a 20% drop at the pump.
OPEC is a cartel. Throttle to me. Then the rig count can increase and exploration ramp up a notch. Which is already happening in the Middle East
I'm certainly hoping for a drop in domestic heating oil price (as this isn't affected by tax quite as much). Glad I didn't top the tank off back in October (never done it in the last 13 years but may do if there's a decent drop.)
sharkbait - I just ordered a ton of wood pellets today. £258. Same as it was in 2011. It peaked at about £275/t in 2012 for me.
[url] http://www.theguardian.com/business/2014/oct/19/oil-price-us-opec-brinkmanship-shale-gas [/url]
Half of Russia's revenue is from oil and gas.
Is this 'peak oil' then?
Is this 'peak oil' then?
No - Peak oil is the theory that there is only a finite amount of oil and at some point we will produce x; there after production will always be less than x.
Currently production is rising rapidly (due to shale oil and other factors) and so the price is dropping. As the price drops producers (NOC's and PLC's) generally invest less in exploration and development. Eventually production drops below demand and the price rises... at which point producers invest to bring on more production... they eventually bring on too much and so on and so on...
Was listening to prof Ian Stewart this afternoon. He said there is reckoned to be 80 Yeats worth of shale under America. OPEC are nervous.
Tis good news, but I doubt we will see much drop in pump prices so I won't be ordering an American muscle car just yet.
The US market is rigged as well as there is essentially an export ban. The US thinks everyone else should have free markets, not so rigorous at home.
the US is a net importer of energy - that rule wouldn't increase global supply (and drop prices outside the US).
I thought the reduction in oil price was due the US increasing production nothing to do with OPEC who were in fact taking the hit.
the US is a net importer of energy - that rule wouldn't increase global supply (and drop prices outside the US)
Not suggesting it would, just illustrates their comfort with a bit (well alot) of protectionism, which is often forgotten.
OPEC wants the us back in it's SUVs
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Time to buy a V8...
I don't quite get this, the price of the raw material goes down, why the hell should the retailers drop the price when the consumers have, time and time again demonstrated that they're prepared to pay the elevated prices.
There's this sham of a free, capitalist market. If you want a regulated market follow places like Mexico, India and Brazil with regulated petroleum markets.
Oh no, hang on a sec, they're all deregulating...
Was offline past few days so just responding
It would appear to be a deliberate ploy by OPEC to throttle the US shale industry.
@ernie the lowest cost US Shale Oil costs about $40 a barrel (average is higher but still below $70, the point with the US is that will buy domestically as first choice and now with shale they have a choice). It's not just about production costs though its about what the countries need revenue wise from Oil. Saudi needs a price of $90 to balance it's budget, a lot of middle eastern countries are in a similar position (Iran is off he charts as they need $130)
The big loser in this is Russia, they need $110 to balance their budget and with the financial markets cut off due to sanctions they are in trouble. Their currency has fallen 30% and their economy is heading for a deep recession.
If prices average $95 (ie way way above where they are today) airlines globally could make an extra $15bn in profits.
@thisisnot - I don't follow the pump prices as I use so little petrol (3,000 miles pa) so that's an interesting stat. I do fear an increase in taxes is on the way
Re Peak Oil - we may already have passed peak oil for conventional production. After increasing from 1994-2005 it hasn't increased for 9 years. USA Shale oil and Canadian syncrude have allowed global production to increase.
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The big loser in this is Russia, they need $110 to balance their budget and with the financial markets cut off due to sanctions they are in trouble.
Oil production costs are also very high in Russia (generally). Lower oil prices make a number of oil fields uneconomical.
Also, low oil prices make ISIS less profitable.
Having said that, OPEC is a very imperfect cartel and not all oil producers are members.
@thisisnot - I don't follow the pump prices as I use so little petrol (3,000 miles pa) so that's an interesting stat. I do fear an increase in taxes is on the way
Now's a good time, prices seem to be droping almost 1p/week, even the local Esso is 117.9p. I think they should scrap the VAT on Fuel and put a fixed rate of tax on it (finger in the air, about 90p/l), so that changes in the price would be lessened, at the moment if prices go up then tax (as VAT) goes up with it. In the short term demand is failry constant, people don't spend £50/week on petrol like they do groceries, they buy 50l/week and suck up the price making savings elsewhere.
I think they're now independant if you count Canada. They're even looking into building LNG export facilities to export to China and Japan which is worrying the Australians who's invested heavily in LNG export.the US is a net importer of energy
Long term investment is usualy based on a figure arround $75/barrel, anything else is a fluctuation. I think China will take up the slack very quickly regardless and we'll be back to business as ususal in a year or so.
jambalaya - Member
The big loser in this is Russia, they need $110 to balance their budget and with the financial markets cut off due to sanctions they are in trouble. Their currency has fallen 30% and their economy is heading for a deep recession.
To me this doesn't look too far wrong.
thisisnotaspoon
Long term investment is usualy based on a figure arround $75/barrel, anything else is a fluctuation. I think China will take up the slack very quickly regardless and [b]we'll[/b] be back to business as ususal in a year or so.
What about Russia and the impacts on other eastern euro countries? Considering current sanctions, the currency in medium term decline, other global forcing (OPEC production / china's economic slowdown / Japans market volatility) do you think Russia has deep enough pockets to wait it out. It seems they are already getting nervous.
For "OPEC" read "Saudi Arabia".
They are trying to kill the competition by using their vast wealth to ride out the strategy. It will hit Iran, their enemy. It will also hit Russia, with whom the good old US of A are currently a bit upset.
Some might think there was a bit of a conspiracy going on there... I couldn't possibly comment.
people don't spend £50/week on petrol like they do groceries, they buy 50l/week and suck up the price making savings elsewhere.
I fill up when the tank's empty.
Amusing watching Ms Sturgeon on Sky the other day using OPEC forecasts of $100/b next year to make the case for oil bank-rolling the SNPs plans for Scotland. 2015 futures are all <$70...
http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html
Will Hutton wrote an interesting piece on it in the Observer on Sunday on the [url= http://www.theguardian.com/commentisfree/2014/nov/30/falling-oil-prices-gives-west-chance-refashion-policies ]economic opportunity offered by falling energy prices[/url]
scaled - Member
I don't quite get this, the price of the raw material goes down, why the hell should the retailers drop the price when the consumers have, time and time again demonstrated that they're prepared to pay the elevated prices.
scaled makes a very, very good point. The market tolerates the prices at the current level so why would any self respecting retailer drop the prices?
The market tolerates the prices at the current level so why would any self respecting retailer drop the prices?
market share.
someone will drop the price to try and grab some extra custom and everyone else follows suit.
edit: and if they didn't people would be squawking about price-fixing cartels. a bit like OPEC...
scaled makes a very, very good point. The market tolerates the prices at the current level so why would any self respecting retailer drop the prices?
Competition? If the price didn't drop that would be an indication of price fixing.
was going to say this, scaled does have a point tho, if the price went up to £3/l there will still be a queue at the pumps on sunday afternoons (or whatever day is "fill 'er up" day in your area), so I don't think anyone is going to drop their prices [i]too[/i] farsomeone will drop the price to try and grab some extra custom and everyone else follows suit.
(and iirc don't prices rises happen instantly whereas cuts generally happen a little later)
🙁
Not good for me. The ship I work on drills exploration wells for the oil companies. Its an expensive and risky business, so when prices are low, work dries up.
Maybe my job will dry up too. 😥
Old Man works for BapCo, and he reckons it's a move to kill off the shale gas industry before it's established.
As for fuel prices, Petrol and Diesel has been on the gradual slide for months now, I don't take too much notice but it's been ages since I managed to squeeze £80 in, I used to hit that with ease not long ago and my last car had a slightly smaller tank.
Perception is a funny thing though, fuel drops from £1.40 a litre to £1.20 and people start at least half-joking, half-thinking about getting something thirsty and loud, when it wasn't long ago petrol went from 85p to £1 a litre and suddenly hybrids and diesels were the way and started the push that made the 50mpg the norm for economic cars and the previous ones that did 35mpg seem positively wasteful.
UK Car Market shrank 5% YoY, good or bad depends on your perspective.
We live rural, so lots of miles plus on oil at home - keep dropping please 🙂
Where the jeff does your sister live wilburt?
I don't notice it much either as I do a lot of work miles and the mileage rate tracks fuel prices. I still make a tidy profit though by driving at 70mph 🙂
Ullapool until recently now Largs which is still 920 miles for me from Suffolk and looks easier by train so i'll give it go next time.
Its easy to get mpg obsessed!
Nice roadtrip 🙂
We live rural, so lots of miles plus on oil at home - keep dropping please
Plus one!
Competition? If the price didn't drop that would be an indication of price fixing.
Not necessarily.
They don't exist in a bubble. Sainsburys/BP/Tesco know how much Shell/Asda/Esso are charging for fuel.
(The numbers below are purely to show the point and don't represent any real profit/margin figures)
Let's say the market has 'settled' when the 'cost price' of fuel (inc tax) is £1.20/l and we're all selling for £1.40/l and making 20p profit on the fuel and tax to cover our costs and provide a tiny bit of profit.
Then the price of crude falls, which has a knock on effect of lowering the 'cost' to the petrol stations to £1/l.
I *could* lower my price, immediately, to £1.20, so I've still got the 20p to cover my costs. But why not wait for a bit? If I manage an extra day at £1.40 then that's an extra day of 40p/l profit rather than 20p/l.
"But what about market share?"
Aha, so I want to steal some market share, take customers from my competitors and so get more money that way. The profit per litre might be the same but if I'm selling twice as many litres because everyone is coming to me rather than BP down the road....
Except, as soon as I lower my prices, all of my competitors do too. 30 minutes ago we were all making 40p per litre profit. But I got greedy, tried to steal some customers by lowering my prices, everyone else (sensibly) responded by lowering their prices too, so now I've got the same market share as before my genius market share idea, but it's making a smaller profit.
^ Oligopoly. See also banks, domestic power suppliers etc.
Surely that depends on how easy/cheap Russian oil is to extract ? I have no idea the cost of extracting Russian oil.It's definitely bad news for difficult/expensive oil extraction such as shale and North Sea oil.
Shale isn't that difficult, in general the pattern over the last decade has been to look for and extract harder to reach reserves (deep water etc). Shale is a new market entirely, at the cheap end it's $25 per barel equivelent.
If anything the USA is behind these moves as they're far more effective than sanctions at bringing down governments.
Russian or Iranian oil isn't nececeraly expensive to extract, but their economies are built on that ballancing the budget (a bit like the argument behind Soctish devolution). Typicaly the less you're able to trade other goods/services with the rest of the world (i.e. we/'the west' imposed sanctions) the more dependant you are on oil exports. Hence why you see numbers like Russia/Iran needing $110/$130 per barrel, it's not the cost of extraction (which is probably $20-$30), it's the ~$90 they need on top of that to keep the governments running, taxes low and populations happy.
Nice roadtrip
It is very, I also have family who conveniently set up home in Leeds and Perth which breaks up the journey nicely and last time stopped over in the Lakes which worked out perfectly.
Im trying to encourage my son to move to the South West for a bit of variation 🙂
Typicaly the less you're able to trade other goods/services with the rest of the world (i.e. we/'the west' imposed sanctions) the more dependant you are on oil exports
sanctions on Russia haven't really restricted the ability of private Russian companies to import or export, although finance on major infrastructure has become more tricky. the problem isn't sanctions, the problem is that Russia's economy hasn't diversified enough.
Russian extraction costs ARE high, as are taxes which are fixed (not proportionate and vary with price) - some fields just won't produce, while fields in other markets will keep banging away (at lower profit). there is also a political problem as well as an economic one: Putin (and the Iranian regime) buy off rising middle class expectations with expenditure. that won't be possible if oil revenue falls further - which means pissed off people will demand the fall of the regime...