الأثر الجيوسياسي للنفط الرخيص

Nov 26, 2014 Martin Feldstein

كمبريدج ــ في الأشهر الخمسة الماضية، انخفض سعر النفط بنسبة تجاوزت 25%، لكي يصبح أقل من 80 دولاراً للبرميل. وإذا ظل السعر عند هذا المستوى، فإن هذا قد يخلف عواقب بالغة الأهمية ــ بعضها خير وبعضها الآخر شر ــ على العديد من البلدان في مختلف أنحاء العالم. وإذا سجلت أسعار النفط المزيد من الهبوط، كما يبدو مرجحا، فإن العواقب الجيوسياسية في بعض البلدان المنتجة للنفط قد تكون مأساوية.

إن سعر النفط في أي وقت يعتمد على توقعات المتعاملين في السوق بشأن العرض والطلب في المستقبل. والدور الذي تلعبه التوقعات يجعل سوق النفط مختلفة تماماً عن أغلب الأسواق الأخرى. ففي سوق الخضراوات الطازجة على سبيل المثال، لابد أن تتوازن أسعار العرض والطلب مع المحصول الحالي. وعلى النقيض من هذا، يستطيع منتجو النفط وغيرهم في الصناعة أن يحجبوا الإمدادات عن السوق إذا تصوروا أن السعر سوف يرتفع في وقت لاحق، أو ربما يزيدوا من المعروض في السوق إذا تصوروا أن الأسعار قد تنخفض.

تحجب شركات النفط الإمدادات عن السوق من خلال خفض كمية النفط التي تستخرجها من الأرض. وبوسع منتجي النفط أيضاً أن يقيدوا المعروض من خلال إبقاء المخزون من النفط في ناقلات النفط في البحار أو غير ذلك من مرافق التخزين. وفي المقابل، يستطيع المنتجون أن يضيفوا المزيد إلى النفط المعروض في السوق بزيادة الإنتاج أو تخفيف المخزون لديهم.

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Martin Feldstein

Writing for PS since 2008
129 Commentaries

Martin Feldstein was Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research. He chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. In 2006, he was appointed to President Bush's Foreign Intelligence Advisory Board, and, in 2009, was appointed to President Obama's Economic Recovery Advisory Board. He was also on the board of directors of the Council on Foreign Relations, the Trilateral Commission, and the Group of 30, a non-profit, international body that seeks greater understanding of global economic issues.

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0 Comments on this paragraph, 42 Comments on this article

Lance Brofman Jan 3, 2015

Conventional wisdom is that the dramatic reduction in fuel prices acts like tax cut for consumers and thus tends to increase economic activity. This would tend to make it more likely that the Federal Reserve would raise interest rates. Clearly the decline in oil prices reduces the headline inflation numbers. However, most believe that the Federal Reserve concentrates more on the various core inflation metrics. These are computed ex-food and ex-energy.
While it is certainly true that lower oil prices give consumers more spending power, there are some offsets to the increased economic activity due to lower . Most are aware that capital spending by oil drillers has been cut back in response to the decline in oil prices. Some people employed in drilling and oil services have lost their jobs. What has not gotten much attention is the decline in incomes that the lower oil prices have entailed.
Every barrel of the nine million barrels per day produce in the USA, which is about 3.3 billion barrels per year, ultimately results in payments to Americans. Individuals own land on which they receive royalty payments based on the proceeds of the sale of oil produced by wells on that property. Many Americans own shares in royalty trusts whose income also is reduced as the price of oil declines. Even those who do not directly own oil leases or wells may own shares in corporations that do own wells or leases and essentially suffer the same proportional decline in income or wealth as a result of the decline in oil prices. Every dollar in decline in oil prices ultimately reduces the income of some American by about $2.2 billion. Also, various state and local governments receive severance taxes based on the price of oil produced in their jurisdictions. The $45 per barrel decline oil prices reduces incomes of Americans by $150 billion at an annual rate. That does not count any lost income by employees in the oil and related industries.
Lower oil prices could also lessen demand for some new aircraft and vehicles whose main attraction is that they are fuel efficient. The apartment building that I live in just spent about $6 million to install co-generation equipment that will allow the building to switch from heating oil to natural gas for heating and hot water which made much more economic sense when oil prices were at $100 per barrel than the current $55 per barrel.
The impact on inflation due to lower fuel prices in not entirely restricted to the core inflation numbers. Various wage, pension and similar payments are based on the headline consumer price index. To the extent that lower fuel prices reduces the consumer price index, that would lower those payments. Likewise, even wages that are not explicitly indexed to the consumer price index may be effected by lower fuel prices as wage demands could be lessened by lower costs of living.
Lower fuel costs can also be passed through to prices that are inside the core ex-food and ex-energy area. Transportation cost are a prime example. Airfares and other transportation costs such a bus, train and water travel have fuel as a large component of their costs. Lower transportation costs can indirectly lower other prices. For example if a good now costs $100 in one city and $95 in another city a certain distance away and it now costs $5 to transport the good from one city to the other, those prices can prevail. However, if the cost of shipping the good from one city to the other falls to $4, the price in the high cost city should fall to $99..."
http://seekingalpha.com/article/2770845
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Timolin Burke Dec 12, 2014

I'm wondering if OPEC decided to maintain output to hamper Russian geopolitical adventuring which supports bad players in their region
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kiers sohn Dec 10, 2014

Prof Feldstein,
your report is MISSING key facts.
Read Senator Carl Levin's investigative report on American Investment Bank meddling in OIL.
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kiers sohn Dec 10, 2014

" producers can also restrict supply by holding oil inventory in tankers at sea" PRODUCERS? Try Investment Banks! Ever hear of Senator Carl Levin's report on Financial Manipulation by TBTF banks in commodities?

Here are the low-lights:
Morgan Stanley that over the last ten years were
trading uranium, operating coal mines, running warehouses that store metal, stockpiling aluminum and copper, operating oil and
gas pipelines, planning to build a compressed natural gas facility, acquiring a natural gas pipeline
company, selling jet fuel to airlines, and operating power plants.

In General the banks had advantages:
One key concern when financial holding companies compete against non-bank
companies is that their borrowing costs will nearly always undercut those of their non-bank
competitors. Another advantage is their relatively low capital requirements. The Federal
Reserve Commodities Team determined that, in 2012, corporations engaged in oil and gas
businesses typically had a capital ratio of 42% to cover potential losses, while bank holding
company subsidiaries had a capital ratio of, on average, 8% to 10%, making it much easier for
them to invest corporate funds in their business operations

the financial holding
companies used their physical commodity activities to gain access to commercially valuable non-
public information that could be used to benefit their financial trading activities
- Timolin Burke Dec 12, 2014
  
  That's pretty egregious distortion of the marketplace - I'll check out the report, thanks.
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Joel Vonarburg Dec 3, 2014

Finally the OPEC has to face a (new) rival, which is on a almost higher level than any of the OPEC member states have ever been. Let's assume the US is able to continue with a production of nine million barrels a day - which actually is on the same level as Saudi-Arabia is - so that there's going to be a competition where the OPEC could lose there sovereign status as number one oil exporters. This would be an event we never had before and maybe could change the world. It could also be that we're just heading to another, new war for some of the black gold.
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Farhan Ismail Dec 3, 2014

It certainly seems as if the power of OPEC is dwindling - the end of an oil-controlling OPEC era? It seems like it.
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Mark Aiyadurai Dec 3, 2014

Hello Martin,
One downside is the impact on US banks with a significant exposure to the energy sector (through lending, investing etc.). This is becoming apparent today (see market watch news) for some Texas banks feeling the crunch via their stock prices. However the larger picture is the consumer benefit via increased wage growth as you and other point out.
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Nicolas Büchler Dec 3, 2014

Hi Martin
The fall in price of oil sounds like a sanction from the US and its allies to harm the Russian economy. If the war in Donbass continues, Russia will have to face economical problems and I'll continue to drive further with my gas money.
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John Brian Shannon Dec 3, 2014

Hi Martin,

Assuming all you've written and extrapolated is correct, and I think it is -- all the U.S. and Europe would need to do to further punish North Korea, Iran and Russia would be to immediately act to install a unified (U.S., Canada and EU) carbon tax of (for example) $20.00 per tonne of CO2 emitted, which is equal to about half of the actual cost of CO2 emissions.

Taxing carbon punishes coal the most, then oil, and then much less so, natural gas.

This kind of taxation would further depress oil prices (even taking this small taxation amount into consideration) which would make other fuels/energy somewhat more attractive by comparison. (Further lowering oil profits for Iran and Russia)

The additional cost of the carbon tax wouldn't add much to the price of fuels at the pumps, certainly nowhere near the price of gas at the pumps of 90 days ago for example, and the tax revenue could be used to mitigate carbon damage in the economy -- or, it could be used to fund zero-carbon energy solutions. Or, both.

I'm certainly not proposing a level of subsidies equal to that enjoyed by the fossil fuel industry which will top $600 billion dollars globally for 2014.

I'm merely proposing that half of the $20.00/ton carbon tax revenue be used to fund renewable energy projects where they make economic sense. While the other half can be used for carbon damage mitigation or energy efficiency programs.

By slightly increasing the cost of fossil in this way, natural gas with it's lower footprint would excel as compared to oil and coal, for yet another net gain towards a cleaner environment.

To summarize;
By initiating a small $20.00/tonne carbon tax we would reap the following benefits:
1. Punish North Korea, Iran and Russia.
2. Give non-polluting renewable energy a mild subsidy boost.
3. Relative to oil and coal, we would give natural gas a boost.
4. Enjoy even cleaner air and lower health care costs.
5. Decrease acid rain damage on concrete infrastructure (concrete spalling).
6. Preserve rising *domestic* electric vehicle and hybrid/electric vehicle sales (Chevy Volt, Ford Fusion, Ford C-Max, Ford Escape, etc)
7. Add even more jobs to the economy, via renewable energy manufacturing and installations.

And, I get that Russia and Iran would eventually ramp-up their natural gas production to counter the lower oil price and related production levels.

But fine, we all breathe the same air and burning lower carbon fuels (gas, instead of oil, renewables instead of coal) benefits us all, no matter where it is being burned.

Just a thought.

Best regards, JBS
http://johnbrianshannon.com
- John Brian Shannon Dec 4, 2014
  
  Hi The Dude,
  
  Thank you for taking some of your valuable time to comment, Professor.
  
  I stand by my assertion that increasing the price of coal, oil and natural gas, via a $20./tonne carbon tax will make oil and coal less attractive, relative to gas and renewables.
  
  Consequently, natural gas with its much lower carbon footprint would then begin displacing oil and coal.
  
  And so would renewables.
  
  As oil prices have fallen by approx. $80./bbl in 2014, 'adding back' $1.00 per bbl to the price of oil via a carbon tax (which is equal to about $.02 per US gallon of gas) would have almost no effect on consumers, while lowering demand (and consequently and eventually) the price of oil and coal.
  
  Energy companies would slowly shift from coal and oil to lighter carbon fuels (gas) and renewable energy, to avoid per tonne carbon taxes and to gain the subsidy dollars for renewables.
  
  Even a small carbon tax proves to the consumer that environmental degradation from fossil fuels is, in actual fact, real -- and therefore the psychological movement away from the 'dirtiest' fossil fuel by the consumer begins.
  
  Thank you again for your time, JBS
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- the dude Dec 3, 2014
  
  Hi John,
  
  First of all, we think lowering the CO2-emissions consequenlty in the future is the way to go, with government intervention being the driving force behind the transformation of the energy industry.
  
  But we think your approach would do more harm than good: First of all, your assumption of a price depression due to a CO2-tax is simply wrong; as the, at this very point, demand for oil is very inelastic. The costs of extracting oil are extremely low so the Oil exporters are willing to enter the market at a low price, for example $60 per barrel. A CO2-tax will simply not decrease the demand, or the price for oil. A CO2-tax will have the opposite impact of your assumption. The Oil prices will increase due to the fact that the Oil exporters have to pay an additional tax, which they will compensate by simply rising the oil prices.
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jagjeet sinha Dec 2, 2014

When oil prices were hovering near $150 only five years ago, the billion plus believers hopes of salvation from the bonus ought to have been a moment of rejoicing. As it is now for those billions who will benefit. The bonus from God was heaven sent opportunity to have spread the bounty to the hapless billion believers - in financing the creation of world class megacities from Khartoum to Karachi, Dakar to Dhaka. Unfortunately the bonus remained restricted for a few Oil Sheikhdoms, where migration for the billion believers is impossible, sending those trillions from oil back to Geneva and Germany, Paris and London. Salvation then perhaps lies in lower oil prices that creates hopes for better economics for both the believers as well as the non-believers. Inequality-sans-frontiers as abhorrent as Inequality within borders.
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Kirk Sheckler Dec 1, 2014

And consequently we will see the Republicans pull back on any subsidies to alternative energy options while preserving fossil fuel subsidies under the guise of keeping jobs and helping 'poor' oil companies survive low oil prices. Manipulation at it's best.
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captainjohann Samuhanand Dec 1, 2014

For India it is good. This can be taken by Russia as an economic war and gang up with North koreans, Iran. etc and also make nuclear powers of Turkey and Iran.
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David Lloyd-Jones Dec 1, 2014

Marty,

You write "The role of expectations makes the oil market very different from most others. In the market for fresh vegetables, for example, prices must balance the supply and demand for the current harvest. By contrast, oil producers and others in the industry can keep supply off the market if they think that its price will rise later, or they can put extra supply on the market if they think the price will fall."

Every sentence, every phrase, every jot and tittle of that is silly.

Prices of vegetables don't "must balance" for any reason at all. Prices and supply and demand as defined and as influenced by those prices, will come within shouting distance of each other, and a random amount of food will go to waste.

And vice versa: the amount of vegetables and peoples tastes will influence the prices, which will vary wildly. If a tight-rope walker swayed as wildly, there had better be a net below.

Vegetable sellers, if they were well organized, like oil sellers, if they were well organized, would quite certainly keep their goods off the market, or stop planting seeds, if they thought they would make more money by doing so. I think you grew up seeing farmers pour milk down the drain and FDR pouring gold into the basement of the New York Fed to keep the prices high, not to "balance" any imaginary supply and demand. Arguably they do still do so. Remember those lovely hog-cycle lattices we used to draw in skool? And this despite the fact that, again only arguably, farmers and food sellers are less well organized than oil sellers. (I take no position on that one, and I doubt that you will either, if you're thinking about it off deadline.)

Why do you write such nonsense Marty? You would give any student who submitted that a D. At best. Unless the student were a Republican, I suppose...

-dlj.
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Mike Mc Cracken Nov 30, 2014

At a macro level, the lower oil price will transfer large amounts of income from oil producers to oil consumers. Net this will likely improve the economic performance of Japan, China, most of Europe, and the US.
Canada and the UK will have a net benefit, losing some rents on production of oil, but gaining GDP from increased exports and more consumer consumption.
The global effect will be larger if those who lose rents reduce their savings, and those who now pay those rents, consume them instead.

Interest rate effects are endogenous, and will react to inflation (down) and growth (up).
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Wayne Davidson Nov 30, 2014

Entity.
Resurrected from fossils fire their black souls rise to bend the blessings of belenos. Latent in Ler's abyss they conspire with chaos as an entity in entropy's disorder.
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Wayne Davidson Nov 30, 2014

Governments and by default, economists and their understanding of risk in complex systems is at best, retrospective, never predictive. Unless the environmental and consequential costs of CARBON are factored into the economic equation the ultimate cost of retrospective consequence will impoverish habituated humans.
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j. von Hettlingen Nov 30, 2014

Martin Feldstein must know that Opec's decision not to shore up prices by cutting production was endorsed by Saudi Arabia, which is the largest producer within the oil producing cartel. Saudi Arabia wants Opec - accounting for one third of the world's sales - to remain a key player in business and tries to subdue countries like Russia, which are not in the Opec.
The other problem Saudi Arabia sees is the increasing production of shale oil in the US. Its boom has been one of the driving forces behind the decline in prices, which, when dip further, would render the whole shale production less and less economical in the long run. The Saudis and their Gulf allies can live with this decision for a while, as they have significant financial assets to sustain lower oil prices.
"The big losers from falling oil prices include several countries that are not friends of the US and its allies, such as Venezuela, Iran, and Russia," and they have tried to urge other Opec members to keep oil prices above $100 a barrel by reducing output. In vain!
Venezuela is said to have even more oil than Saudi Arabia. It is one of the world's largest exporters, but due to mismanagement it had squandered much of its resources even before the current price fall. The country is suffering rampant inflation and needs prices of $120 a barrel to fund its extensive social programmes.
Russia's Finance Minister Anton Siluanov estimated the falling oil price is costing Russia up to $100bn a year, while Western sanctions have hit the country by $40bn. As 70% of Russia's revenues come from oil and gas export and with the rubel losing value, Putin would have to review the already strained budget. Russia has failed to diversify its economies years ago.
Iran may not be as hard hit as Russia and Venezuela, as a result of years of sanctions. But Saudi Arabia could be influenced by the conclusion of the nuclear talks that Iran is conducting with the West, which are being extended to summer 2015. This may put pressure on Iran to compromise.
Indeed, the "geopolitical impact of cheap oil" can't be underestimated, as global economy matters. And in every game there are winners and losers!
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uday mudaliar Nov 30, 2014

OIL has been at historical highs due to USA war on terror. The price of oil and the number us BOOTS IN Iraq and AFGHANISTAN has followed the same trend. This has been shadowed by QE.
More troops led to increase in oil PRICES. US entered Iraq in 2003 and OIL started a upward trend since.
Among the 3 variables Troops, QE and OIL Price only the troops reduction was declared by USA-Obama. The other 2 have tracked it on the downside as they did on the upside.
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Marc Pentacoff Nov 30, 2014

Furthermore, Saudi Arabia's currency is pegged to the dollar, which has strengthened. Therefore, from a domestic stand point they can survive a decline of crude prices quoting in USD since the USD has risen recently against other currencies.
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Marc Pentacoff Nov 30, 2014

False. Interest rates do no such thing. A high level of interest rates will make some projects less economic and a low level of interest makes more projects more economic. That is what the theory would say. Not sure what theory you are working with. In practice, lower rates of interest encouraged junk bond issuance, whose proceeds were used to help drill out leaseholds. This increased the number of wells -- which are a sunk cost funded by debt. Given that they are "sunk" and supposed to cover the cash flows to creditors, a significant portion of these wells will not be shut in.

Hence, in this historical instance, the low rate of interest encouraged a drill out of leaseholders and therefore decreased the amount of oil the producers decided to leave in the ground. A rise in the rate of interest, therefore, would cause crude prices to rise in the long run since it would stifle junk bond issuance thereby stifling capital market debt funding of oil and gas capex.

But in the end analysis, crude prices are a much bigger factor than interest rates on the capex schedule of the oil and gas E&Ps. You should read SeekingAlpha.
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Miguel de Arriba Nov 30, 2014

https://eys50.wordpress.com/2014/11/30/la-ilusion-del-control/
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M A J Jeyaseelan Nov 30, 2014

The most forgotten fact is that oil was over priced by a huge margin. It was sought to be pushed through the roof through speculative deals. As it happens with all speculative markets, the real economy finally has the last laugh. This is exactly what is happening on the oil front.

I believe that a reasonable price for oil at current circumstances is about $50 per barrel. Anything above it will create opportunities for alternatives.
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Sharon Sanders Nov 30, 2014

There's an issue regarding low-priced oil that no one talks about. The sale of large cars are way up and small cars are down. So we're back to gas guzzlers and away from smaller electric or hybrid cars. So in addition to destroying much of this country to be so-called energy efficient (while shipping much of our oil overseas), is it all a ploy to sell more big cars and keep our dependency on fossil fuels growing and polluting, and, then, of course, destroying our planet via greedy oil, gas, and auto suppliers?
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george sos Nov 30, 2014

And my genaral comment for thre article is that i do not see any problem whatsoever,with the fall in price.Only good things can happen and of the nations that depend on oil for income have problems we ,the world should get together and help them produce our energy resource.Otherwise it will be our loss too!So it is not at all like the writter says.If oil price drops more,it will be good news for everyone as there will be leftover wealth to be spent on assistance to the oil producing countries rather than the oil companies (see vultures) who are exploiting rresources that are not theirs...As for saudis,they can live on what they already have for 10 generations so do not woory ...For russia we can ,as europe help them get the oil we need out ,and seell it to us in low prices ,so what?..Scaremongering in rder to create the idea that russia is heading to trouble (and probably the think tanks want them to revolt like the arabs so the IMF can install afterwards their own government there too....we know the trick by now!!1it s not working any more!!!:)sorry!!!
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george sos Nov 30, 2014

ok i dont need a degree to tell you that if oil was perishable like vegetables ,we d have a different talk now...:):)
On the serious side,this is exactly why we should nationalise all oil production and make energy available to all ,at the same price ,for long periods of time.This trick is illegal trading if it was done by any other indusrty.But the big oil multinationals have politicians in their back pocket,so until we revolt and overthrow this capitalist system and take over production and resources we will be at the hands of the vultures...:(
- kiers sohn Dec 10, 2014
  
  @George SOS, there is tremendous scope for oil price manipulation! Morgan Stanley had been storing HUGE quantities of oil during the QE contango. QE itself was responsible for HIGH OIL (and the Fed knew it. imagine that!).
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steve from virginia Nov 30, 2014

Oil prices are down b/c customers who must pay for the entire multi-trillion-dollar fuel supply enterprise ... are bankrupt ... ruined by high petroleum prices and the absence of gain from the use of the fuel.

Feldstein should go down the road from Harvard and see how the other half in the greater Boston area are living. It isn't just petroleum taking it in the neck ... also Walmart and dollar stores. Half the country's citizens are government-dependent. These folks are not bidding fuel supply, they can't.

Fuel price dump = marginal (fracked) barrel is soon to be off the market. This cannot be good for customers' pockets = fuel shortages do not make anyone rich. The outcome is lower prices still. Right now the supply-and-demand mechanism is not working the way people have become accustomed to. Tighter supply does not mean expectations = more bidders and higher prices it means more demand failures.

Noteworthy is the price swoon has occurred during a period with two wars in energy-sensitive regions.

http://www.economic-undertow.com/2014/10/08/petroleumeconomic-endgame/
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Petros Theodorou Nov 30, 2014

Expectations indeed have an effect but dated brent as the main spot pricing mechanism refers to actual trading taking place in 25 30 days assesed by MOC, definitely up to a small part affected by forward and futures but mainly by actual D&S balance
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kalarickal Fabian Nov 30, 2014

A warning by Israel that it is planning to bomb Iran will send the oil prices up. Though, they will again come down after the threat is proved not real.
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Amit Mishra Nov 30, 2014

Why hasn't the author touched upon the ramifications of increased gas consumption due to lower prices?
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Michael Holt Nov 29, 2014

I don't agree with Martin Feldstein's assessment of the potential impact of higher future interest rates. First, this is an issue likely to be of greatest concern to those considering investments in new production, of whom no reference was even made. The potential for higher future interest rates is actually an incentive to finance new production at today's low interest rates—not to leave the oil in the ground as Martin Feldstein has suggested. Having said this, the prospect of oil prices falling below prices at which US and Canadian unconventional oil producers can afford to operate could result in more oil staying in the ground, but this outcome would be for an entirely different reason.
Second, existing producers may actually have an incentive to produce more oil, not less, in order to maintain revenue levels at the same level despite lower oil prices. Otherwise, such revenues may not be large enough to cover their debt servicing costs. This is an extremely important issue, since 40% of high yield debt outstanding has been issued to finance the development of unconventional oil resources.
Many companies have invested in hedges against lower prices, but the terms of these hedged investments are not likely to exceed 12 to 18 months. So, existing producers may still choose to increase, or at least maintain current production levels in order to achieve revenues at the hedged prices. Granted, the murky world of derivatives makes it more difficult to predict what may happen to production levels, but absent full awareness and understanding of these hedges, it’s possible that producers may still be under pressure to increase production levels to demonstrate to investors that cash flows will be sufficient to cover debt servicing costs. Otherwise, interest rates on high-yield debt available for new production could soar with potential near-term consequences since the useful lives of "fracked" oil resources are much shorter than those for conventional oil wells.
If faced with both lower oil prices and higher interest rates, it would be easy to see why investment in new capacity would slow, but for current and prospective producers of unconventional oil in the US and Canada, it would not be due to expectations of higher future interest rates for which yields would still likely pale in comparison to the potential returns available to them from other types of investments.
Finally, with respect to OPEC countries, low interest rates may make it less attractive for them to invest their surplus funds in US Treasuries, but low interest rates are just as unlikely to cause them to keep their oil in the ground since they have much bigger fish to fry. Unless they maintain current production levels, oil prices probably would not fall to levels that would drive out competitors. True, prices below $100 will also result in budget deficits for those countries, but these countries should be able to borrow just as easily as many much more indebted countries, and at lower rates and for longer time periods compared to those available to private sector producers of unconventional oil in the US and Canada.
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Miro Alibasic Nov 29, 2014

You're buying futures, you're taking gamble.. World will not fall apart with if Russ or Venez losses on Oil Options. Go for sustainable, cleaner alternative Energy.
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Nathan W Nov 28, 2014

I thought that Saudi was producing higher than previously announced, and that the perception that they are willing to produce more to a) help the global economy and b) reduce the economic power of certain other major energy producers (Russia) basically suggests that there isn't much point in talking about higher priced oil for the foreseeable future (although this could obviously change in as long as it takes to say "WTF!").

In oil-heavy economies, however, those firms which managed to stay in business during periods of high oil prices will now be able to enjoy competitiveness gains under falling currency. Hopefully they will put these dividends to good use, because volatility is a most obvious descriptor of energy prices, and its long-term determinants are most difficult to pin down with anything remotely resembling accuracy.
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Dallas Weaver, Ph.D. Nov 28, 2014

I would put Saudi Arabia in the category of hostile countries with all their funding of fundamentalist Muslim groups around the world. It is their oil wealth that created much of our problems, including 9/11.

I have two prius (one is a plug-in) and solar power on my house, with the intent of becoming oil free and telling Saudi Arabia to go pound sand.
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Tom Shillock Nov 28, 2014

Econobrowser's oli blog posts:
http://econbrowser.com/?s=oil
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Kevin Remillard Nov 28, 2014

Breakeven oil production:
http://www.reuters.com/article/2014/10/23/idUSL3N0SH5N220141023
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M A J Jeyaseelan Nov 28, 2014

A more apt description of the current fall in oil prices would be to say that the speculators have finally given up on oil.

Oil prices rose rather sharply riding on speculation and the bet was that it would hit $190 per barrel by 2030. This forecast was made by the US Department of Energy.

Neither the prediction by DOE EIA nor the frenzy one witnessed in oil futures had any basis. US becoming a net exporter of oil is just small pin that pricked the overblown balloon.

In fact, downward pressure was being felt in the market for the last 18 months or so. I had written about in April 2013. Over the last one year so, what one saw was stiff resistance to the from the speculators. They had to resist the fall since too much money had already flown in to heady speculation.

More important than the rise in supply is the gloom facing oil futures thanks to the sliding prices of solar panels and the bigger breaks expected on the nuclear front.

You read more from https://www.linkedin.com/pulse/article/20141005214242-17589031-global-economic-recovery-is-here-for-sure?
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Gimel Wicaksono Nov 27, 2014

Prof. Feldstein, what a thought! The current low price of oils then reflect the low demand of oil and excess supply of oil in oil market. One question is that there is expectation right now that Fed Fund rate would increase in the near future, possibly by the mid of 2015. Then according to you thought, the supply of oil would be even more than today which would drive down the oil price further. But, since many of new supply of oil in the US coming from shale oil which is very expensive, the lower price would cost these companies to stop their operations for lack of appropriate profit. This will raise the price of oil again. At the same time, lower oil price would inhibit the development of energy alternative. I myself think that the lower oil price would generate more consumption boost, which is good for economy like Eurozone and Japan as well as the US but bad for oil extraction industries. Geopolitically, it will put a lot of pressure on Russia to be able to continue its populist program and expansionary mission to Great Russia. However, the caveat is that was might be flared somewhere in the middle east and that would push up the oil price again, for safety reasons.
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Kanchan Kumar Nov 27, 2014

The sharp fall in oil price caused by the supply glut after surge in the U.S. Shale oil production and the weakening global demand may bring a fundamental geopolitical shift rebalancing the market.
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