Oil plunge is threat and boon to global economies

Was watching the news a few days ago when OPEC was meeting and our resident idiot, Bank Of Japan leader Kuroda was really upset that oil prices are dropping. He even hinted that he would try to do something to keep it high so as to reach this magical number 2% inflation. Does he have no clue how this simple fall in oil is good for the economy, and the people of japan? They will drive more, spend more, be able to buy more, but he cant see that. As for people living outside of Tokyo who drive, and heat with kerosene, this will hopefully be a relatively inexpensive winter, but not if Kuroda has anything to do with it!

"Oil plunge is threat and boon to global economies."

Fuel costs can account for as much as 25-30% of a family's budget, so that seems like a net positive for Japan and Western economies As for the plunge in oil prices being a worrying sign of weakness in the global economy, prices have been inflated for years by OPEC and oil speculators. So maybe now it's time for a little payback.

Haven't seen any drop in prices at my local gas station. It's so damn high actually.

The government should pass the lower cost down to the consumer.

The hardship being endured by low/middle class families and businesses should be alleviated. An inflation target shouldn't override people's welfare.

Good job U.S.

Now OPEC has a competition in shale.

Still, the lowest it could go is $70 per barrel oil. That's about the price where shale investment brings 0 profit. Below $70, shale investment becomes a money-losing proposition, so shale businesses cut back or shut down business. If OPEC wants the shale industry to shut down, that's what they could do is keep the price of oil below $70 per barrel - like what China did to the rest of the world's rare earth metals (by supplying the world with cheap rare earth metals, the rest of the world stopped investing in mining rare earth metals and shut down).

"The government should pass the lower cost down to the consumer."

First, the big corporations first need to make more money. Japan's corporates only have about 3 trillion dollars in surplus cash, and they've been demanding the ability to accumulate more cash that they can't and won't use.

99% of everyone else must be patient and continue to sacrifice "for the greater good."

before the WFC when oil was over $160/barrell they sucking us dry. but tPEC seem to shot themselves in the foot. countries like the US are now investing heavily if shale/oil & gas and they slowly becoming oil indepenedant. and with the huge increase in LPG/natural gas production in Australia, Russia parts of Asia. people now have a different choice to the OPEC cartel. OPEC this week decided not to decrease oil production to raise prices as doing so would speed up the production of shale/oil/gas in the US/Canada. Whichever way you look at it having a competitor to OPEC is a good thing for consumers

As for the plunge in oil prices being a worrying sign of weakness in the global economy, prices have been inflated for years by OPEC and oil speculators. So maybe now it's time for a little payback.

It's supply and demand that causes the price to go up or down. I think the historically elevated price of oil (and various other commodities) was more due to a massive increase in demand out of China since the early 2000's than buying by speculators or OPEC artificially constraining supply.

Speculators can make money whether oil is going up or down. If speculators were bidding up oil to prices that were out of whack with fundamentals, it would imply that there was a lot of overpriced oil out there just waiting to be dumped on the market. If people who own that oil wanted to make money (and I presume they would), they would dump it and the speculators bidding it up would be drowned.

Now, with the US shale gas revolution picking up, it seems to me that we're looking at a massive positive supply shock more than a weakening global economy as this article and other commentary seems to suggest.

Since businesses have no problem raising the price of goods when oil prices rise, let them then lower the prices when oil prices fall. Problem solved.

Wait till oil prices rise again on some hype or speculation, then our newly devalued yen will show us some extreme pain.

Kuroda does not care about the average Suzuki-san. He is rich and does not have to work.

countries like the US are now investing heavily if shale/oil & gas and they slowly becoming oil indepenedant

Whoa whoa, you are looking at this completely the wrong way. This drop in oil prices is a very bad thing for the US to become energy independent as it is now economically unfeasible to explore and drill these expensive shale formations.

That was OPEC's goal - stop the shale gas boom in its tracks.

Competition for OPEC is obviously a good thing but this crashing oil price just solidifies OPEC's stranglehold on the world oil prices.

Manipulation of the oil price should be seen as the impetus to make renewable energy sources more efficient!

Actually, the big loser in all this is OPEC itself.

Here's why: Russia at least has a potential gigantic customer for its petroleum products in China, who would like to buy way less petroleum products from OPEC countries (especially no need to send tankers through the pirate-infested Straits of Malacca). This, plus the US now expanding domestic oil and natural gas production, means OPEC could end up losing two of its biggest customers, which will result in a huge glut of petroleum products on the open market.

International oil prices reduced by more than 35% but in Japan at gas station it is down by only 10% ~ 15% . At its peak I used to fill my tank @163Y/L and now @145Y/L

Where do these numbers like $70 relating to the profitability of shale oil/gas producers come from? Is that perhaps just a rumour being spread around by the oil speculators (trying to manipulate the price lower)?

The numbers I have seen and heard suggest that it's more like $40 or $50.

Where do these numbers like $70 relating to the profitability of shale oil/gas producers come from?

Financials

Break-Even Points for U.S. Shale Oil

http://www.bloomberg.com/news/2014-10-17/oil-is-cheap-but-not-so-cheap-that-americans-won-t-profit-from-it.html

Oil at $80 a Barrel Muffles Forecasts for U.S. Shale Boom

http://www.bloomberg.com/news/2014-10-21/oil-at-80-a-barrel-muffles-forecasts-for-u-s-shale-boom.html

Falling Oil Prices Just Put Two Major U.S. Shale Basins in the Red

http://www.theblaze.com/stories/2014/11/30/falling-oil-prices-just-put-two-major-u-s-shale-basins-in-the-red/

Where do these numbers like $70 relating to the profitability of shale oil/gas producers come from?

At this point lower than $70 is really crushing even conventional offshore oil exploration and production. The big finds of the past are pretty non-commercial now, and the new finds are not very economical without high-technology extraction. That's expensive, and oil companies aren't going to spend the money if there's no profitability to be found in the markets.

Shale gas is even more expensive, and lots of infrastructure needs to be built.

You may say "So what?" and in a way I agree with you, but it means a) less shale gas production (can be a good and a bad thing) b) really constricted supply once demand picks back up - hello price spikes for everything dependent on the price of oil.

As usual, all the talk is about short-term economic benefits and costs, when the big loser is actually humanity and the planet as this can lead to excessive consumption of oil based fossil fuels at a time when everyone should be drastically cutting back to limit as much as possible rising average global temperatures in the coming years.

It here not a tinny winny whiff that powers that be in the State Department are not grinding the Russian economies major export market into influencing the Kremlin to capitulate in Eastern Ukraine, maybe I have caught conspiracy theory fluenza. Nurse my medication please.

If OPEC wants the shale industry to shut down, that's what they could do is keep the price of oil below $70 per barrel

But the OPEC nations can't survive with oil below $70 per barrel. They need high oil prices to fund their governments and keep their people happy.

Yes they can reduce prices by keeping up production and shale gas companies will shut down. But once prices start to rise again the shale gas companies will start right back up. It is a game that OPEC can't win, they have based their whole economies on oil production and without that income they will fall apart.

"governments dependent on oil revenues."

What happens when the oil runs out? Oil is, after all, finite...

@fxgai "The numbers I have seen and heard suggest that it's more like $40 or $50."

You have a good point. to add on that, I believe that the costs to get the cruel out of the ground vary a lot depending on the geographic locations. For example, Saudi Arabia would spend a range of $25-$35 to produce a barrel of crude oil from most of its wells, but for the US and Canada, the costs would be higher.

For Japan, lower prices of crude oil would be a mixed bag. For consumers, it means more disposable income because people spend less at the pump, but for BOJ, that is a potential issue which may be counterproductive for it to reach its goal of ending deflation in Japan.

The steep slide of crude oil may point to a bigger problem – weak demands of commodities from the used-to-be hot growing countries may show the sign of fatigue, which ,in turn, might hurt already hammered Japanese economy due to lack of demand for Japanese imports.

I think that it may take weeks if not months for the crude oil price to find the floor. Until then, fasten your belt, it could be a wild ride. :)

The Saudi Kingdom is sitting on some substantial currency credit add to that some $720 billion in financial reserves, markets bet Saudi will prevail a prolonged downturn than its rivals. There are no winners here, pumping costs range between $15 to $25 a barrel, Opec Mideast to North Africa.

That was OPEC's goal - stop the shale gas boom in its tracks. yes but before OPEC could do what they like as there was no alternative. they now know that if oil becomes too high then shale/gas/oil will then become a cheaper alternative. this is good overall as they havent got everybody by the balls anymore, just one nut only.

Low oil prices mean no possibility of inflation here. However, the Japanese government will interfere even further in the market by attempting to reduce the yens value. How can Japan possibly fight a global trend being reliant 100% on oil imports?

Expect unusual events......

before OPEC could do what they like as there was no alternative. they now know that if oil becomes too high then shale/gas/oil will then become a cheaper alternative

...and the converse is true, if oil prices are too low OPEC countries can still make money, but the shale gas producers cannot.

Mike O'Brien

Yes they can reduce prices by keeping up production and shale gas companies will shut down. But once prices start to rise again the shale gas companies will start right back up.

Doesn't work that way. You can't just restart production, leases need to be signed, people need be hired, equipment needs to be bought. The capital investment is huge, and it isn't going to happen if there is a chance the producers aren't going to be able to profitably bring their products to market. It's a very conservative industry, and I don't mean politically.

Doesn't work that way.

Sure it does.

Oh I agree that shale gas wouldn't spring back in a few months or even years, but it would return. Heck that is how it came to exist in the first place.

It's a very conservative industry

Yes, that is why it produced the term 'wildcatter'.

tax the oil revenue a lot

tax the impact of oil prices , so the impact on its citizen no one can feel a lot of course

http://www.washingtonpost.com/opinions/charles-krauthammer-raise-the-gas-tax-a-lot/2015/01/08/5b4b407c-976f-11e4-aabd-d0b93ff613d5_story.html