# Will oil price go up to $100/barrel? Discussion in 'Business & Economics' started by Saint, Dec 7, 2016. 1. ### iceauraValued Senior Member Messages: 22,946 So about 250 billion set aside in government bonds, to finance that stream of payments. A beginning - doesn't cover the direct and immediate damages, or the interest accumulated in years of delay. And about ten times the settlement, much of which has yet to be paid anyway: https://www.justice.gov/opa/pr/us-a...ement-bp-resolve-civil-lawsuit-over-deepwater 2. ### Google AdSenseGuest Advertisement to hide all adverts. 3. ### joepistoleDeacon BluesValued Senior Member Messages: 22,428 The Saudis unexpectedly announced further productions cutbacks. So you have 2 things at work here. First, the unexpected nature of this announcement and then the actual cutback. Remember, at this point, this is all speculation. Not a single drop of oil has been taken off the market at this point. The same amount of oil is in the pipeline. It takes months to reduce the oil supplied to the market. 4. ### Google AdSenseGuest Advertisement to hide all adverts. 5. ### billvonValued Senior Member Messages: 12,273 OK. I have no interest in "financing that stream of payments" - the oil companies should pay it directly (either through direct payments or through an insurance provider of their choice.) It does cover direct and immediate damages. 6. ### Google AdSenseGuest Advertisement to hide all adverts. 7. ### SaintValued Senior Member Messages: 3,227 Does US pump more shale oil into the market? 8. ### billvonValued Senior Member Messages: 12,273 A little over half the oil the US produces is tight (shale) oil. 9. ### joepistoleDeacon BluesValued Senior Member Messages: 22,428 Compared to what? The odds are good that US producers will produce more oil as oil prices rise. If the free markets work, if the oil market in the US is free, that's what will happen. Since July of this year US oil production has fallen with each passing week. But now with oil in the 50s that will likely change. US oil producers have consolidated, refinanced and are much more lean and efficient than they were say a year ago. They are very profitable at 45 dollars a barrel and even better at fifty something a barrel. And the US is one of the largest oil producers in the world. It's in the top 3. http://money.cnn.com/2016/08/09/investing/us-energy-independence-oil-opec/ 10. ### SaintValued Senior Member Messages: 3,227 Now is winter, does the consumption of oil increase? US shall pump more oil to stabilize the market. 11. ### joepistoleDeacon BluesValued Senior Member Messages: 22,428 No, oil consumption goes down a bit because people don't travel as much during the winter months and the vast majority of people don't use oil to heat their homes. But here is the thing, US oil production has been falling since June. That trend is likely to continue for at least the next few months. It will take time for the recently announced changes to affect supply. There is pipeline. It takes a while to move the oil from point A to point B. The oil markets are currently over supplied. A lot of oil has been placed in storage. It's going to take some time to bleed off the oversupply. But that said, experts expect the oil markets will move from being oversupplied to deficit in the first half of 2017. https://www.bloomberg.com/news/arti...ate-oil-supply-deficit-in-first-half-iea-says 12. ### SaintValued Senior Member Messages: 3,227 Will Trump push to export shale oil to other countries? 13. ### joepistoleDeacon BluesValued Senior Member Messages: 22,428 I don't think he has to. Congress has already passed a law allowing the export of oil. But based on Trump's appointments, I think he would let the oil industry do whatever it wanted to do as long as it didn't cause him to suffer any negative press. Last edited: Dec 14, 2016 14. ### iceauraValued Senior Member Messages: 22,946 In which case the de facto subsidy will lower the cap on the market price of a barrel of oil, by externalizing major costs. The 250 billion? - maybe. But the current obligation is about a tenth of that, and is yet to be paid in full - and that ten cents on the dollar is how the price cap drops as low as$70.

That could change, is all I'm saying. And without externalizing such costs, the oil market cannot hope to keep its barrel price at that level.

15. ### SaintValued Senior Member

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Why interest rate rise causes oil price drops?

16. ### joepistoleDeacon BluesValued Senior Member

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Because interest rate increases slow/reduce demand; they slow economic growth.

Last edited: Dec 15, 2016
17. ### SaintValued Senior Member

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You mean more people will keep money in bank's accounts to earn interest?
Less spending will cause oil demand drops?

18. ### joepistoleDeacon BluesValued Senior Member

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I mean higher interest rates make the cost of money more expensive; so people spend less money. Less spending means less demand for virtually everything including oil. For example, when interest rates rise the cost of buying a home increases because the borrower will have to pay higher interest rates. If a car buyer borrows money to buy a car, it will cost more money to buy the car, because the borrower will need to pay a higher interest rate on the money he/she borrows to purchase the car. Higher interest rates will affect people who carry balances on their credit cards. They will need to pay more interest. More of their disposable income will be used to service their debt, i.e.make interest payments, and less of that income will be available to purchase goods and services. And the same applies to businesses. It will cost businesses more to borrow money, and thus more to purchase goods and services.

What you alluded to was opportunity cost, and certainly their is an opportunity cost involved. If people can earn higher interest rates in safer investments, there is an incentive to take less risk. So instead of investing in more risky projects in order to get yield, they may keep their money in safer investments.

For bondholders and holders of bond equivalent stocks, i.e. low or no growth dividend paying stocks, higher interest devalues their holdings. For example, let's say a bondholder owns a bond yielding 4% and interest rates rise to 5%. Why would bond investors want to buy the 4% bond when they can just as easily purchase a 5% bond for the same level of risk? They wouldn't. So that drives down the value of the 4% bond.

Last edited: Dec 16, 2016
19. ### SaintValued Senior Member

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Then why the Feb increase the interest rate?
Any benefit to America's economy?

20. ### joepistoleDeacon BluesValued Senior Member

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Because it wants to keep inflation under control. Slowing the economy does that. And in this case, the Fed wants to get back to normalcy.

Because Republicans in Congress have for the last 8 years made fiscal remedies difficult and for the last 6 years impossible. The only remedy available to mitigate the problems caused by the Great Recession was monetary policy, I.e. bond purchases and low interest rates. Thus for the last 8 years interest rates have been extraordinarily low.

Low inflation and a stronger central bank are big benefits to the American economy and that is why the Fed is raising interest rates.

Last edited: Dec 16, 2016
21. ### SaintValued Senior Member

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This will attract more investors to pull money back from oversea?
Back to oil price, Saudi may have reached its maximum output rate and it has no way to increase output, nor to cut output because oil is her income. Saudi's support of oil output cut is actually a strategy to push up oil price to benefit herself only. Is that true?

22. ### joepistoleDeacon BluesValued Senior Member

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Yes, it will strengthen the dollar and it will draw money from overseas, especially developing countries.

Actually, of the oil exporting states, Saudi Arabia is least dependent upon oil prices. Arab states have invested heavily in diversification for the last several decades. They have been planning for this day for decades. But the plan to cut production does benefit all OPEC and non OPEC oil exporters. The question is can they sustain it? How long will it be before Russia betrays the agreement? Russia is very desperate. Iran isn't far behind. How much of a breech of the agreement is Saudi Arabia willing to tolerate? Saudi Arabia's oil production capacity is a state secrete. So we really don't know what their capacity is. There are estimates of 12.5 million barrels per day.

OPEC's ability to control prices on the long-term is dubious. While spot oil prices (current) have risen, 2 year and 5 year oil prices have not. So that suggest a degree of market skepticism.

Last edited: Dec 17, 2016
23. ### SaintValued Senior Member

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Does the US still import oil or use its on shale oil?
I don't see any reason Russia and Iran want to cut oil output, they are desperate for money.
How about Venezuela, why its economy is so bad now? Isn't it an oil exporter? Will it cut its oil output too?