Posted on 11/15/2014 7:51:26 PM PST by Lorianne
Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans - doled out by banks to subprime borrowers and then resold numerous times on international debt markets - began to unravel and default?
Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe. Well a similarly chilling economic scenario could be set off by the current collapse in oil prices.
Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.
“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.
(Excerpt) Read more at telegraph.co.uk ...
“In theory, lower prices should attract more customers and create more gross profit. Because people buy more when prices are low.”
It depends on the margin. If you lose 50 cents on every gallon, more sales means larger losses.
Supply and demand is one factor to oil and gas prices. Absolutely there is movement on Natural Gas every thursday when the storage numbers come out. But you’re completely ignoring the geo-political factors. I believe the geo-political often moves the market as much or more than the supply numbers.
You’ve got the Saudis with tiered pricing.... right? They lowered prices to the US and raised them to Asia. That’s called a geo-political factor.
Listened to Fox Business on Thursday or Friday and the big whigs were talking oil. Several billionaire type investors did not see a firm bottom immediately, but; they did not think oil would go lower then a few bucks. In fact they predicted 100 plus oil very soon. They said best enjoy and travel fast.
Geopolitical factors are not limiting production right now. If at some point they do, then the US producers will of course benefit.
I've got my muscle car out again at least until the weather turns or the price goes up. Looks like the weather will be the first problem.
It’s good if you have no debt. But the economy is built on debt. And those who borrow will be payed future debt with dollars worth more.
It seems like a conundrum, but it’s not.
If we were a nation without debt, thing would just get cheaper and cash would be king. But we are not.
You are right that I don’t know what it takes to start an oil company, but when I look out as an investor, I see small companies that started up around 2009-2011. I haven’t done a survey, but I would think there are many companies that started around that time. I doubt anyone but the biggest could survive the downward slide since the 70s. So, clearly there are people who take the risk when they see an opportunity.
What volume?
It’s a good way to get Russia from backing Syria. This is about punishing Putin.
Walmart, Target and a slew of discount stores have margins that are so large they are able to run half price sales and still make money.
I was in Taiwan 25 years ago and was taken to lunch and a tour of a phone factory. The phones were manufactured on an assembly line for 60 cents and sold in Kmart for $9.
They cant make it up on volume if the price of production is more than they can sell it for.
The Saudis are intentionally pushing down the price to slow or halt the fracking boom with a side benefit of giving Putin pause.
However, if memory serves, it would take $60 oil to start hitting the more costly fracking; about $50 for the oil sands and $40 for the less costly fracking. So there is still quite a bit of margin left.
You mean, like Ramadan, Cinco de Mayo and Kwanza?
Lower oil prices should mean lower production costs for all products made from petroleum. That’s a lot of stuff.
This is a non issue. It’s all about supply/demand. Crude dropped to under $17 per barrel in (I think) 1998. There was no catastrophe then and there will be non if it happens again.
I've wondered about that. A large portion of the still inadequate growth in the US economy has been in the oil industry.
the largest buyers on the other side to my knowledge are airlines doing exactly what the producers are doing from the other side. Smoothing out costs. Now one airline may have more pre purchased product than other as a percentage of usage but we’re talking about a really small difference when factored out over millions of miles. The U.S. government likely also pre purchases oil in the same way. I can’t think they would leave something like fuel for military vehicles to the vagaries of market movement. Refineries i believe also pre purchase.
With gold its a different story. Theres much more speculative buying since its buying to fill a demand thats not necessary but rather more along the lines of a luxury.
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