The big losers in the oil price drop.

[Kraut and Tea]

I spent alot of time during the last few days reading through various articles in The Economist, Der Spiegel, Die Zeit and other papers on the subject.

You should not underestimate the effect that a drop in oil price can have!

Remember that one of the big reasons for the collapse of the Soviet Union was a drop in oil price that renderd the Soviet state owned petrolium industry worthless.

So far the biggest loser from what I read will be Venezuela. Venezuelas petrolium industry is state owned and it`s income makes up the lion share of the nations GDP. But for the nations budget to be balanced through the petrolium industry income, oil prices would have to rise to a very unlikely 200 US$ per barrel. As a result of the OPEC announcement the government of Venezuela has already announced that it will be raising taxes and cuting public spending. The upcoming years will be very harsh for Venezuela and I do not see the Venezuelan government getting an additional term if the petrolium industry remains in expensive state ownership.

Iran has already announced that because of the OPEC decision it`s GDP will shrink by 20%. To be fair, Iran is used to sanctions and financial restrictions by now, but in such a situation they will probably try to kling on to as many financial assets as they have. This blow will certainly be felt by the Iranian government and it will be interesting to see how they will react to it. Either it will soften their positions in negotiations or it will result in them becoming even less reasonable under pressure.

Russia has an economy that is dangerously dependant on oil exports. 70% of the nations exports are oil and gas, and with the petrolium industry being state owned 50% of the Russian budget comes from oil revenues. So this could be a big blow to the Russian government. The Russian government is currently gambling that with the upcoming winter and an increased demand for oil, a recession could be avoided during the winter and provide the time to find a solution. But that is a big gamble and if no solution is found during the winter, investment will gradualy pull out of Russia during that winter and recession could be unavoidable by spring.

In the US the states of Pennsylvania, North Dakota, Oklahoma and Texas will lose alot through this recent development. All these states have recently seen the rise of a fraking industry, but with fraking being an expensive process, alot of these buisnesses will face problems in the near future. It could be possible that these states will suffer from job loss that could go into the thousands and some of these states might also lose outside investment.

Nigeria will also suffer alot from these recent developments. The petrolium industry is also a big part of the nations economy and could potentialy reset the recent rise of a new middle class in the country. But worse than this is how Nigeria suffers from other problems. Combine that with the wide spread corruption, the still widespread poverty and the threat of islamist fascism in the north and you get a rather toxic meltingpot of horrible things that could go very wrong.

Canada will probably suffer from the same problems as the US with it`s fledgling petrolium industry losing value.

Brazil and Mexico will also suffer through this. Brazil has only just started finding big oil reserves and creating it`s own petrolium industry, it might see this new industry on which so many hopes were put renderd useless. And Mexico will now probably have no choice but to privatise it`s petrolium industry.

In Europe several countries that import most of their oil such as France, Spain, Italy and Germany will benefit from this development. But other such as the UK and Poland who invested into a petrolium industry of their own will suffer similar negative effects as the US and Canada have (especialy Scotland will face problems).

On a national level the biggest winners are India, China and Japan. But especialy Japan, who produce absolutly no oil and are dependant on expensive foreign imports of it. And they needed this boost the most, considering the current state of their economy.

Of course on an individual level many private citizens will rejoice and many buisnesses relying on transportation will potentialy grow.

But in total I am just utterly disgusted by this behavior by a small group of Arab s forming a cartel and making a decision that completly disrupt the healthy competition within what would be a free market.
Some analysts say that they are doing this mainly to screw with Iran.
But the analasys that I agreed with most is that they are scared by the rise of foreign self sufficient petrolium industries after 9/11, which are the result of a distrust of the Arab oil monopoly. And with this move they are merely trying to crush that comptition and reasert themselves as the dominant power and their monopoly in this field.

[fkizz]

Predatory dumping at its best. So it's not just an academic concept of international economics

[craziii]

Predatory dumping at its best. So it's not just an academic concept of international economics

it is as good as it gets. only real way to hurt russia atm.

see fellow americans, all that fracking + small EQs + faucet fires is worth it just to be able to do this as usa is now a oil producing country

[Sphere]

I'd be hesitant to lump any part of the US into the "loser" category, even the oil producing regions.

“When oil prices fall, the benefit to consumers outweighs the loss to producers,” said Dean Maki, chief United States economist at Barclays. “Investment in oil and gas production is still less than 1 percent of gross domestic product. Consumer spending is 68.5 percent of G.D.P.”


Even in Texas, the estimated loss of 15,000 energy production jobs that might occur if lower crude prices persist would be offset by increased employment in sectors like refining and transportation, as well as in businesses that rely on consumer spending, according to Mine K. Yucel, senior vice president and director of research at the Federal Reserve Bank of Dallas.

http://www.nytimes.com/2014/11/14/bu...n-economy.html

[Condottiere 40K]

The Saudis have their own agenda, which may include getting rid of the fracking competition, cutting Russia down to size and irritating the Iranians.

Congress could probably find a way to subsidize domestic companies in the name of national security, Nigeria should take the opportunity to eliminate waste and corruption in their oil industry, but the biggest loser would have to be Venezuela, whose regime's ability to get re-elected shouldn't be underestimated.

[Big War Bird]

I remember when Dick Cheney was lambasted for suggesting the $30 for a barrel of oil was a healthy price.

[Claudius Gothicus]

If oil prices continue dropping and stabilize at a new low, or even decline just a little further from their current value, Venezuela is going to be in a lot of trouble. Their current access or previous investments on infrastructure are non-existent, high inflation continues raging, their ability to get cheap international credit is seriously lacking and depends on equally shady allies like Russia or Iran, the political situation continues to swing back and forth around the grim prospect of civil strife, SEBIN has been arbitrarily detaining citizens without legal procedures for quite a while now. The PSUV itself is torn, how the country will be able to transit to a somewhat republican form of government I don't know... between the militaristic faction that's willing to turn the country into a Cuba-like state if things go ugly and the incompetent guys Maduro rallies half the country seems doomed to follow chavistas to the doors of the cemetery with little option.

[conon394]

I spent alot of time during the last few days reading through various articles in The Economist, Der Spiegel, Die Zeit and other papers on the subject.

You should not underestimate the effect that a drop in oil price can have!

Remember that one of the big reasons for the collapse of the Soviet Union was a drop in oil price that renderd the Soviet state owned petrolium industry worthless.

So far the biggest loser from what I read will be Venezuela. Venezuelas petroleum industry is state owned and it`s income makes up the lion share of the nations GDP. But for the nations budget to be balanced through the petroleum industry income, oil prices would have to rise to a very unlikely 200 US$ per barrel. As a result of the OPEC announcement the government of Venezuela has already announced that it will be raising taxes and cuting public spending. The upcoming years will be very harsh for Venezuela and I do not see the Venezuelan government getting an additional term if the petrolium industry remains in expensive state ownership.

Iran has already announced that because of the OPEC decision it`s GDP will shrink by 20%. To be fair, Iran is used to sanctions and financial restrictions by now, but in such a situation they will probably try to kling on to as many financial assets as they have. This blow will certainly be felt by the Iranian government and it will be interesting to see how they will react to it. Either it will soften their positions in negotiations or it will result in them becoming even less reasonable under pressure.

Brazil and Mexico will also suffer through this. Brazil has only just started finding big oil reserves and creating it`s own petrolium industry, it might see this new industry on which so many hopes were put renderd useless. And Mexico will now probably have no choice but to privatise it`s petrolium industry.

Russia has an economy that is dangerously dependant on oil exports. 70% of the nations exports are oil and gas, and with the petrolium industry being state owned 50% of the Russian budget comes from oil revenues. So this could be a big blow to the Russian government. The Russian government is currently gambling that with the upcoming winter and an increased demand for oil, a recession could be avoided during the winter and provide the time to find a solution. But that is a big gamble and if no solution is found during the winter, investment will gradualy pull out of Russia during that winter and recession could be unavoidable by spring.

In the US the states of Pennsylvania, North Dakota, Oklahoma and Texas will lose alot through this recent development. All these states have recently seen the rise of a fraking industry, but with fraking being an expensive process, alot of these buisnesses will face problems in the near future. It could be possible that these states will suffer from job loss that could go into the thousands and some of these states might also lose outside investment.

Nigeria will also suffer alot from these recent developments. The petrolium industry is also a big part of the nations economy and could potentialy reset the recent rise of a new middle class in the country. But worse than this is how Nigeria suffers from other problems. Combine that with the wide spread corruption, the still widespread poverty and the threat of islamist fascism in the north and you get a rather toxic meltingpot of horrible things that could go very wrong.

Canada will probably suffer from the same problems as the US with it`s fledgling petrolium industry losing value.

Brazil and Mexico will also suffer through this. Brazil has only just started finding big oil reserves and creating it`s own petrolium industry, it might see this new industry on which so many hopes were put renderd useless. And Mexico will now probably have no choice but to privatise it`s petrolium industry.

In Europe several countries that import most of their oil such as France, Spain, Italy and Germany will benefit from this development. But other such as the UK and Poland who invested into a petrolium industry of their own will suffer similar negative effects as the US and Canada have (especialy Scotland will face problems).

On a national level the biggest winners are India, China and Japan. But especialy Japan, who produce absolutly no oil and are dependant on expensive foreign imports of it. And they needed this boost the most, considering the current state of their economy.

Of course on an individual level many private citizens will rejoice and many buisnesses relying on transportation will potentialy grow.

But in total I am just utterly disgusted by this behavior by a small group of Arab s forming a cartel and making a decision that completly disrupt the healthy competition within what would be a free market.
Some analysts say that they are doing this mainly to screw with Iran.
But the analasys that I agreed with most is that they are scared by the rise of foreign self sufficient petrolium industries after 9/11, which are the result of a distrust of the Arab oil monopoly. And with this move they are merely trying to crush that comptition and reasert themselves as the dominant power and their monopoly in this field.

Well now should we call the Wambulance?

Well let's start with

Canada will probably suffer from the same problems as the US with it`s fledgling petrolium industry losing value.

in the US the states of Pennsylvania, North Dakota, Oklahoma and Texas will lose alot through this recent development. All these states have recently seen the rise of a fraking industry, but with fraking being an expensive process, alot of these buisnesses will face problems in the near future. It could be possible that these states will suffer from job loss that could go into the thousands and some of these states might also lose outside investment.

You know in the US and Canada that is generally called doing business and excepting the risks and rewards. Does is suck if you loose your great job and then get your house foreclosed - yes but that is how things work. If your fancy restaurant fails - yep - same. And its just the same if you bet on high oil prices and over leveraged that investment or failed to consider what the consequences of a drop in prices would be and plan for it.

So let's shed no tears for the US and Canada - seeing as somebody will buy the assets and rights of failed producers and the technology of fracking is proven and the infrastructure is place. North American production will rebound and not being corrupt petro states their economies will in the larger picture will be fine. The individual states our on their own just as say Colorado and Washington will be if they bet their budget on legalized pot revenue only to see other states legalize and their 'visit' revenue fall.

Nigeria

Mentioning corrupt petro states - cry me a river. Nigeria has (and has had) so much oil wealth the fact it lacks a sovereign wealth fund to compare to Alaska or Norway is simply the fact of breathtaking corruption by elites, a dysfunctional political system and a docile population that seems to just accept those facts. Tough Luck.

Russia has an economy that is dangerously dependant on oil exports. 70% of the nations exports are oil and gas, and with the petrolium industry being state owned 50% of the Russian budget comes from oil revenues. So this could be a big blow to the Russian government. The Russian government is currently gambling that with the upcoming winter and an increased demand for oil, a recession could be avoided during the winter and provide the time to find a solution. But that is a big gamble and if no solution is found during the winter, investment will gradualy pull out of Russia during that winter and recession could be unavoidable by spring.

Maybe the Czar should have considered that before playing EU3 in the Ukraine. Diversifying the economy, tackling corrupting, investing in technology to allow Russia's oil production to be more flexible (ie it can't really turn off the tap) etc.

Brazil

Petrobras has been around for quite a while its hardly new. Its corruption and inefficiency are well known. Again like Venezuela stake your budget on petroleum and which seemed all good at high prices but fail to plane for low ones - man up and deal.

But in total I am just utterly disgusted by this behavior by a small group of Arab's forming a cartel and making a decision that completly disrupt the healthy competition within what would be a free market.

You realize that in a really free market the low cost Arab producers would be pumping even more right?

IN any case let's talk geopolitics. Nations have interests and only very every so rarely real friends. So what if the low cost producers in the Gulf hurt Putin or Venezuelans or Iran? Or the US or anyone but themselves?

Are you angrey at the US for its more or less ban on LGN exports while having a booming Natural gas production and thus low prices compared to the world. The result is of course the US is suddenly making it CO2 Emissions targets as plants are converted to Natural Gas, and chemical plants are flocking back to the US for its cheap stock material. Literally as in actually being moved.

http://www.bloomberg.com/news/2012-0...louisiana.html

[Roma_Victrix]

(especialy Scotland will face problems).

I bet the Scots are now really glad they didn't vote in the referendum for independence, seeing how they banked this on the idea of being a North Sea oil-driven economy.

Clever sheiks, very clever.

You know in the US and Canada that is generally called doing business and excepting the risks and rewards. Does is suck if you loose your great job and then get your house forclosed - yes but that is how things work. If your fancy restaurant fails - yep - same. And its just the same if you bet on high oil prices and over leveraged that investment or failed to consider what the consequences of a drop in prices would be and plan for it.

Funny how the same rules didn't apply to Bank of America, JP Morganchase, Citigroup, etc. when they said "gimme, gimme, gimme" to the federal government. And give to them we did, with the enormous TARP bailout using the public tax-payers' piggy bank.

[conon394]

Funny how the same rules didn't apply to Bank of America, JP Morganchase, Citigroup, etc. when they said "gimme, gimme, gimme" to the federal government. And give to them we did, with the enormous TARP bailout using the public tax-payers' piggy bank.

Yep that's the problem with too big too fail it should never have been allowed but being allowed well you have to roll with it. The lack of anti trust enforcement has been a serious issue for decades and nobody in the US wants to care. THe TARP bailout should have been a chance to break the up a lot banks that are just too big.

[I WUB PUGS]

The US and Canada will not get hammered by this unless prices go even lower (like below $50...that would be amazing) and persist.

Besides. The majority of our drilling has been immediately capped. We are barred from exporting our crude anyway unless you've got an FTA with us. Most of our drilling jobs have been labeled as "seasonal" anyway in the areas that have seen heavy drilling. Those jobs are not expected to stick around. Never were and the employees know that. These are blue collar jobs that pay extremely well. You work at one site, make a huge paycheck and then go on your way.

I'm basically in line with what Conon says. The large drillers won't be going out of business as they've been around forever. The upstart guys may fold but they'll just be bought up by the big guys..........which is probably inevitable anyway.

Alberta has been an oil hotbed for decades. Its just been really good lately but its not like its just going to go away. The Eastern US states that have benefited have resilient economies since they're diversified. The economies of the Dakotas and places like Wyoming and Montana are merely experiencing boom towns but they know it won't stay. That's why the smart states, I believe Wyoming is doing it, are locking up funds from the boom to help down the road.

This isn't the case in the kleptostates of Brazil and Venezuela. No one cares about Iran and they've been getting hammered by sanctions forever anyway. Russia is really the only one that is in deep since the oil industry is so vital to the state budget and the state budget "helps" a lot of other areas.

Edit: Oh yeah, I understand that Venezuela and Nigeria may be in deep too, but no one cares. This may actually end up being good for both states. Nigeria is in dire need of some purging.

Personally, I'm loving it, go lower!

[Sphere]

The US and Canada will not get hammered by this unless prices go even lower (like below $50...that would be amazing) and persist.

US/Canada oil producers might get hammered, but the over all economy will benefit. Every analysis I have read says lower oil prices, even down to something like $35/bar (when many existing US wells would become unprofitable even to run, much less drill) would be a net economic benefit for the US economy. Dollars sent to oil companies are remarkably unproductive compared to US consumers.

[YukonTrooper]

US/Canada oil producers might get hammered, but the over all economy will benefit. Every analysis I have read says lower oil prices, even down to something like $35/bar (when many existing US wells would become unprofitable even to run, much less drill) would be a net economic benefit for the US economy. Dollars sent to oil companies are remarkably unproductive compared to US consumers.

The idea behind this argument is that lower energy prices means higher consumer spending in other sectors. However, one of the classic metrics for consumer spending, holiday spending, has plummeted. So right here, right now, in practice, the argument is falling on its face.

[hellheaven1987]

US/Canada oil producers might get hammered

It is even difficult to say whether US and Canada oil produces would get hammered, since those "major" oil companies often are also the major gas companies too - one that uses fracking to get natural gas and result the reduce of oil price. I highly doubt those companies never thought about oil price would drop if they start increasing the production of natural gas.

Our companies "getting hammered" though means that the big boys will likely eat some losses and cut down on drilling crews substantially, but will try to make up for it in other areas.

Those drilling crews would probably put to drill natural gas anyway, since the technique of oil drilling and gas drilling are similar (besides fracking part, but fracking is used in oil drilling recently anyway). In fact we can probably argue that gas drilling may even bring more employment opportunity since the production life of a gas hole is much shorter than an oil hole, require more drilling be done for gas production.

[Flavius Julius Nepos Augustus]

My father is into shipping. Low oil prices stimulate these huge oil slurpers so that helps the bussiness.
He said that the Americans are building infrastructure to export more oil in the future. I am no export in economics but in the global perspective (IS and instability worldwide) oil needs to be rising! It is no coincidence that is is going down. We will see how it deals Russia.

[hellheaven1987]

The only one that get hurted is the oil industry, that ing 1% of whole world economy, while other 99% benefit from it. It just happens that Russia, Nigeria and Venezuela has an economy that heavy relying on one type of industry so they got hurted badly when that industry doing badly - not anyone's fault, but rather those countries are just too dumb to even organize some sore of diverse economy (which anyone who takes Finance 101 would know that basic principle of investing) and reap what they deserve.

[Condottiere 40K]

If I were writing a thriller, I'd have the antagonists bribe the Daeshii (or inspire the more amenable) to martyr themselves in major Saudi oil industry infrastructures.

[Roma_Victrix]

If I were writing a thriller, I'd have the antagonists bribe the Daeshii (or inspire the more amenable) to martyr themselves in major Saudi oil industry infrastructures.

ISIL is sure making a habit of making everyone into enemies, even presumed ideological allies like the Wahhabists in Saudi Arabia. Since this move by OPEC will deeply hurt Iran's economy, I don't see this as a big loss for ISIL. The latter has been on the receiving end of airstrikes from Iran and fending off the Iraqi military that is propped up and funded not only by the US, but also Iran. However, despite economic woes for Iran in the near future, I don't think that will even stop their involvement in Iraq.

US/Canada oil producers might get hammered, but the over all economy will benefit. Every analysis I have read says lower oil prices, even down to something like $35/bar (when many existing US wells would become unprofitable even to run, much less drill) would be a net economic benefit for the US economy. Dollars sent to oil companies are remarkably unproductive compared to US consumers.

Precisely! And as Hellheaven1987 rightly states as well, virtually every other sector of the economy will benefit from this. The same goes for every other country boasting a diversified economy.

[I WUB PUGS]

Yes I know. Our companies "getting hammered" though means that the big boys will likely eat some losses and cut down on drilling crews substantially, but will try to make up for it in other areas. Exxon isn't going to be shuttering over this. The little guys that have popped up are probably all screwed but they've had a good run and the assets will be eaten up by the big guys with cash just sitting around and the little guys will likely still see a profit on those assets considering how much money they've made over the years, I doubt they're still paying off on those assets.

We aren't going to go to $35 forever, its not sustainable even for the Saudis. This is just a massive reorganization for the oil market and could do wonders to stymie a potential recession that some fear in the near future. In the long run the big guys will still be around with an even larger chunk of the wells under their direct control.

Everyone else is certainly going to see a benefit. If this can continue into summer then we'll probably get a massive tourism boom too! Pretty much every sector benefits from lower oil prices. Its great. Thanks House of Saud!

[Condottiere 40K]

I believe the Saudi production cost is twenty bucks a barrel, but they'll want to squeeze out the maximum possible profit while they still can drill.