Sunday, October 19, 2014
Oil Price Drop - Over Supply or Economic Downturn
Since June the price of Brent North Sea Crude Oil has dropped from about $115 per barrel to $85 per barrel as of last Friday October 17th. This reason for this $30 per barrel drop has been stated to be related to a number of factors such as global economic slowdown, the strength of the US Dollar, or an over-supply because of the increased production in the US. I found an article in this weekend's Economist that gives the data to better understand the situation
Oil Price Drop - Information from the Economist, Cheaper Oil Both symptom and balm
Here are some data from this article:
1) A $10 per barrel drop transfers around 0.5% of world GDP from oil exporters to oil importers. This means that oil exporters like Russia have seen a significant drop in their Gross Domestic Product, GDP.
2) The International Energy Agency said it expects global demand to rise by just 700,000 barrels a day down 200,000 barrels a day. So this suggests a little economic slowdown but still growing demand, hardly a recession.
3) Since January 2013 the world is producing about 3 million more barrels per day. During this period the OPEC countries have increased output by about 1 million more barrels per day while the Non-OPEC countries have increased by about 2 million barrels per day.
4) The US production has increased to 8.8 million barrels per day, up 13% in a year.
5) The Russian production is currently 10.6 million per day so a $30 per barrel takes about $300 million per day out of their economy.
The bottom line: The main driver is supply is exceeding demand with a secondary driver being a slowing global economy. This should have a long term positive impact for the US economy.
Saturday, October 11, 2014
Brent oil tumbles, gold falls as dollar races higher
This week saw some significant changes in the value of oil, gold, and the US dollar. The value of these inversely correlate and as the value of the US dollar relative to other currencies goes up the price of oil and gold goes down. I found this article on this topic to demonstrate it.
The money that would be going into these commodities has to go somewhere so I have a short section called Where Will The Money Go. At the end is This Day in History for October 4th, what a difference a day can make.
Brent oil tumbles, gold falls as dollar races higher
Commodity prices mainly sank last week as the dollar soared on strong US payrolls data, while many markets were also weighed down by abundant supplies and weak demand, dealers said. Brent oil tumbled on Friday to two-year troughs, gold carved out the lowest level so far this year, and cocoa slid on profit-taking from recent 3.5-year highs that were forged on output fears linked to Africa’s Ebola outbreak.
“That, not least, is also due to current concerns about a slowdown in global growth and its potential negative impact on demand at a time where the dollar continues to go from strength to strength.” The European single currency dived on Friday to $1.2501, its lowest level since late August 2012. A stronger greenback makes dollar-priced commodities more expensive for buyers using weaker currencies, which tends to dent demand and push prices lower.
Oil also slid Thursday after Saudi Arabia, the biggest producer in the Opec oil cartel, announced lower prices for the fourth straight month in a bid to hold onto market share. Brent slumped Friday to $91.48 a barrel, which was last witnessed in June 2012. New York crude had tumbled Thursday to $88.18 - a level last seen in April 2013.
The market was hit again by concerns about a glut of global supplies, which have overshadowed ongoing geopolitical jitters in key oil-producing regions. “Despite unresolved geopolitical tensions in Russia, Iraq and Syria, Brent prices have steadily declined over the last two months, as the combination of strong North American production growth, weak global demand growth and lower Opec disruptions led to a build in petroleum inventories,” wrote Goldman Sachs analysts.
Gold fell below $1,200 per ounce for the first time this year, as robust US payrolls also dimmed haven investment demand, dealers said. “The stronger-than-expected economic data saw a renewed appetite for risk among investors, with gold prices selling off sharply today as investors pulled out of the perceived safe haven in search of higher yielding assets,” said Sucden analyst Kash Kamal.
The glamorous metal slid Friday to $1,191.46, a level last seen on December 31, 2013. Sister metal silver hit $16.72, the lowest point for four and a half years. “The strong dollar and waning safe-haven demand weighed on all precious metals prices and led to investor selling,” added analysts at British-based research consultancy Capital Economics.
Where Will The Money Go:
Money tends to flow between commodities, bonds, and US Stocks. With money leaving commodities it tends to move toward bonds and stocks. Money moving to bonds keeps yields low. Money moving to stocks props up prices.
The more that oil prices drop the happier I get as it lowers gas prices helping us consumers and takes money away from countries like Iran, Venezuela, and Russia.
The money that would be going into these commodities has to go somewhere so I have a short section called Where Will The Money Go. At the end is This Day in History for October 4th, what a difference a day can make.
Brent oil tumbles, gold falls as dollar races higher
Commodity prices mainly sank last week as the dollar soared on strong US payrolls data, while many markets were also weighed down by abundant supplies and weak demand, dealers said. Brent oil tumbled on Friday to two-year troughs, gold carved out the lowest level so far this year, and cocoa slid on profit-taking from recent 3.5-year highs that were forged on output fears linked to Africa’s Ebola outbreak.
“That, not least, is also due to current concerns about a slowdown in global growth and its potential negative impact on demand at a time where the dollar continues to go from strength to strength.” The European single currency dived on Friday to $1.2501, its lowest level since late August 2012. A stronger greenback makes dollar-priced commodities more expensive for buyers using weaker currencies, which tends to dent demand and push prices lower.
Oil also slid Thursday after Saudi Arabia, the biggest producer in the Opec oil cartel, announced lower prices for the fourth straight month in a bid to hold onto market share. Brent slumped Friday to $91.48 a barrel, which was last witnessed in June 2012. New York crude had tumbled Thursday to $88.18 - a level last seen in April 2013.
The market was hit again by concerns about a glut of global supplies, which have overshadowed ongoing geopolitical jitters in key oil-producing regions. “Despite unresolved geopolitical tensions in Russia, Iraq and Syria, Brent prices have steadily declined over the last two months, as the combination of strong North American production growth, weak global demand growth and lower Opec disruptions led to a build in petroleum inventories,” wrote Goldman Sachs analysts.
Gold fell below $1,200 per ounce for the first time this year, as robust US payrolls also dimmed haven investment demand, dealers said. “The stronger-than-expected economic data saw a renewed appetite for risk among investors, with gold prices selling off sharply today as investors pulled out of the perceived safe haven in search of higher yielding assets,” said Sucden analyst Kash Kamal.
The glamorous metal slid Friday to $1,191.46, a level last seen on December 31, 2013. Sister metal silver hit $16.72, the lowest point for four and a half years. “The strong dollar and waning safe-haven demand weighed on all precious metals prices and led to investor selling,” added analysts at British-based research consultancy Capital Economics.
Where Will The Money Go:
Money tends to flow between commodities, bonds, and US Stocks. With money leaving commodities it tends to move toward bonds and stocks. Money moving to bonds keeps yields low. Money moving to stocks props up prices.
The more that oil prices drop the happier I get as it lowers gas prices helping us consumers and takes money away from countries like Iran, Venezuela, and Russia.
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