UAEflyer
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Benefits Of Low Oil Prices

Thu Oct 16, 2014 1:13 pm

What could be expected from a low oil prices .. Can't some big economies like USA get benefit by purchasing on a lower rate which will reflect on more productions and exports which obviously mean less unemployment rates.
I'm not an economist but simple understanding from my point of view.

Appreciate your comments & insights
 
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Tugger
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 2:31 pm

Basically it is equivalent to a tax reduction for the USA economy. It puts more money directly into peoples pockets (lower costs at the fuel pump and for the winter dwellers lower cost for winter energy) which increases their purchasing power. It also reduces costs to get products to market (transportation and related services and industries). And over the longer term it reduces production costs from raw material (plastics and other petroleum based material) to again transportation and cost pressures on the business (one being the fact that as a result of a price reduction the employees have more money in their pockets.

Put simply it allows more money to circulate in the economy because it is no longer going to "energy".

Tugg
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WestJet747
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 2:40 pm

Quoting UAEflyer (Thread starter):
What could be expected from a low oil prices

At the consumer level, short-term discounted oil means very little. Basically all you can expect is cheaper fill-ups at your local gas station for a little while, leading to a bit of extra disposabl

At the enterprise level, any business involved in transportation or logistics will see their margins improve, but not long enough to justify significant business growth.

Despite the positives briefly touched on above, there are negatives to lower oil prices. Many, many pensions invest in oil, so lower oil prices could reflect poorly on some pension funds. The risk is generally mitigated through diversification strategies, so people with pensions shouldn't sweat too much.

Quoting UAEflyer (Thread starter):
Can't some big economies like USA get benefit by purchasing on a lower rate which will reflect on more productions and exports which obviously mean less unemployment rates.

That assumes the price remains low, which it will most certainly not. Oil prices are expected to rise back to previous levels by year-end.
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CMHSRQ
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 3:14 pm

Everyone except oil companies and producers benefits from lower prices. Every single product or service is impacted by the price of oil. Tugger's post above pretty much explains it.
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AeroWesty
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 3:29 pm

Quoting UAEflyer (Thread starter):
What could be expected from a low oil prices

See if you can get ahold of yesterday's WSJ, they had a headline story on lower oil prices. Russia's budget is already out of balance, and some of their ministers are accusing the Saudis of intentionally destabilizing the Russian economy by continuing to produce while the world is awash in cheap oil. Venezuela is already on the brink and will suffer even more. Venezuela needs $120 oil to survive, IIRC.

Yeah, man, I love filling up the Caddy at $3.19 per gallon for Plus gas (and probably heading even lower), but when the tectonic shift in how we produce, use and price energy really hits, who knows who the real winners and losers will be.
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PHLBOS
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 4:26 pm

If oil prices stay low for the long term, then the overall economy (at least in the U.S.) should improve. One needs to only look at the mid-to-late 80s & most of the 90s for examples of such.

However, if this price drop is only short-term (some critics are speculating the the price will increase after Nov. 4); it might be a good idea for airlines to purchase some fuel hedges.
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Tugger
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 4:47 pm

Quoting PHLBOS (Reply 5):
If oil prices stay low for the long term, then the overall economy (at least in the U.S.) should improve. One needs to only look at the mid-to-late 80s & most of the 90s for examples of such.

However, if this price drop is only short-term (some critics are speculating the the price will increase after Nov. 4); it might be a good idea for airlines to purchase some fuel hedges.

It is an open question right now, if you can divine the right answer you will be rich. One of the big elements right now is that the oil producers are not selling their future production easily. So the price goes lower to make the deals close. The question is when will that end, when will the contracts for future oil sell faster at a higher cost. Well that will happen when the market thinks the price has stabilized. But with so much new capacity online and disrupting the market, I think the market is having a hard time adjusting their prediction models. The big oil producers could cut production and the reduction could be filled by the new producers. Or the price could go low enough for long enough that some of the big producers need to just sell more to make their budgets work which will keep the price down. Or the new producers with higher costs could go bust with the market too low for too long..... It is just difficult to predict right now and the market hates that.

This is a simple but decent report on the background on the fall.
http://www.businessweek.com/videos/2...e-fallen-to-a-two-year-low#r=lr-sr

Tugg

[Edited 2014-10-16 10:08:33]
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UAEflyer
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 5:53 pm

Maybe a hidden benefit might be slapping ISIS in the face, as they are selling oil and funding their fighters against neighbours.
 
PPVRA
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RE: Benefits Of Low Oil Prices

Thu Oct 16, 2014 7:12 pm

Quoting PHLBOS (Reply 5):
However, if this price drop is only short-term (some critics are speculating the the price will increase after Nov. 4); it might be a good idea for airlines to purchase some fuel hedges.

Hedges are purchased using future prices, not current spot prices. It may be very well that future prices are lower, though, I haven't looked it up.
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Aesma
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RE: Benefits Of Low Oil Prices

Fri Oct 17, 2014 10:06 am

Quoting UAEflyer (Reply 7):
Maybe a hidden benefit might be slapping ISIS in the face, as they are selling oil and funding their fighters against neighbours.

They sell at a 70% discount so I doubt that will change anything for them.
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Pellegrine
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RE: Benefits Of Low Oil Prices

Sun Oct 19, 2014 12:07 am

Quoting Aesma (Reply 9):

Time to publicly shame whomever is getting rich buying oil from iSIS.
oh boy, here we go!!!
 
bmacleod
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 6:38 pm

Big airlines; notably top 3 U.S. airliners AA DL UA, now have a better chance at profit at year-end if Ebola doesn't scare passengers away.
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Dano1977
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 7:15 pm

Russia needs oil to be $108/bbl to balance their budget....Venezuala needs $145/bbl. For every dollar the price of oil drops Russia looses 2 BILLION a day. Oil & Gas = 70% of Russin exports. The effect is huge on Oil exporting countries that depend on oil income
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UAEflyer
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 7:23 pm

Quoting Dano1977 (Reply 12):

Saudi Arabia is watching prices so carefully, as they calculated their budget based on $80 barrel.
In the Middle East low oil prices mean the geo-politics will affect, IS is selling oil and fighting, Saudi and other gulf states selling and fighting IS, so low oil price means less fund for the war against terrorism.
 
Flighty
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 8:02 pm

Quoting PPVRA (Reply 8):
Hedges are purchased using future prices, not current spot prices. It may be very well that future prices are lower, though, I haven't looked it up.

Futures prices move in lockstep with spot prices, more or less, by way of storage arbitrage.
 
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einsteinboricua
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 9:01 pm

I'm just waiting to see a certain news network claim that oil is being lowered to benefit one party in the upcoming elections...
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DocLightning
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 9:13 pm

Quoting einsteinboricua (Reply 15):
I'm just waiting to see a certain news network claim that oil is being lowered to benefit one party in the upcoming elections...

They're getting started. That certain news network stated that low oil prices harm the economy this morning.
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Flighty
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 9:22 pm

Well it does. The 1% needs the oil price to be as high as possible. Take all the money in the world... why not? The 1% gets it. They do not worry about filling their cars, boats, or aircraft.

Since I drive or fly little, and own some oil equities, I am probably in that camp. The higher it goes, the richer I get. Clearly, solar / wind / battery manufacturers feel the same way.
 
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Aesma
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 10:25 pm

Quoting Pellegrine (Reply 10):
Time to publicly shame whomever is getting rich buying oil from iSIS.

Turkey. But we're not even able to shame them for letting jihadis cross their borders, while blocking the Kurds from doing the same.

Quoting UAEflyer (Reply 13):
Saudi and other gulf states selling and fighting IS, so low oil price means less fund for the war against terrorism.

Those countries funded the same terrorists until recently, in fact individuals from those countries are probably still funding them. And of course IS ranks are full of Saudis, Qataris...
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
57AZ
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RE: Benefits Of Low Oil Prices

Wed Oct 29, 2014 11:46 pm

It will only have a limited impact on consumer prices. The problem in the US is refinery capacity which has (and continues to) shrink. One outage and the price will go back up.
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einsteinboricua
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RE: Benefits Of Low Oil Prices

Thu Oct 30, 2014 1:30 pm

Quoting DocLightning (Reply 16):
That certain news network stated that low oil prices harm the economy this morning.

I actually buy that line, though not in the way it's being spun. Considering that oil shale is a booming part of the economy, if oil prices drop enough to make it unfeasible to extract (considering that it's an alternative to high oil prices but the method of extraction is costlier), that's a side of the economy that may cool off and drag down growth, which could also mean jobs lost.

To spin it as a conspiracy that $80/barrel oil will outright harm the economy. No. Prices in the low $70s and a prolonged slump will. I'd give that line a "Mostly True" rating (following Politifact's ratings)

IF that certain news network starts saying that it's an effort to aid a party in the elections...PANTS ON FIRE.
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