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The recent drop in oil prices is being discussed in several threads, so it seems like a main thread is in order. I'm not an expert, I'm just putting together what I've read. A barrel of Brent Crude oil is currently near $60 a barrel, the lowest it's been since 2009. US Crude is below $60, also the lowest since 2009. OPEC has said it will remain low for the next several months, possibly dropping to around $40 a barrel. Unlike the brief price drops in the past, this one has wide-ranging repercussions. How did this happen? There is an oversupply of oil on the market, primarily caused by non-OPEC oil sources and OPEC's reaction to it. - Shale Oil is in full swing, producing enough oil to meet much of the demand in the US. - OPEC's oil cartel is arguably broken. OPEC has ordered oil production to remain high in an attempt to crush competing energy sources. They have made it clear this will continue for at least several months. - Obama supposedly encouraged OPEC to follow this course of action, primarily as a punishment against Russia for their attempt at taking over Ukraine. - China and Europe are experiencing slower growth and demand for oil is down. How does this affect me/my country? It's good news for some and bad news for others. In the US: Cheap gas! Enjoy it, it's going to be around for a while. There is the possibility that smaller shale oil operations will be bought up by big businesses, but the belief so far is that US shale oil businesses will continue to operate. In Canada: Canada is experiencing a housing bubble (forum thread here), in part because of shale oil. They can't really handle the low prices. At least one business is already looking into bankruptcy proceedings. This could be the needle that pops the housing bubble, or not. In Russia, Iran, Venezuela, and other oil selling countries: Several countries project their nation's budget based on oil sales. These countries have already projected budgets where oil needed to be above $100 per barrel. These countries are about to see various levels of hosed and nobody really knows how they will react. Rumors suggests Iran has connections with ISIS to acquire oil on the black market.
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Dec 13, 2014 21:07
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SUV and Pickup sales are up 
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Dec 13, 2014 21:19
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Anyone have any reading on the potential impact on the expansion of the green economy/fuel cell vehicles/higher efficiency vehicles? Part of the reason there was such a push for these type of cars was because gas was spiraling out of control. I don't want cheap oil to ruin progress on that front.
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Dec 13, 2014 21:19
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Mooseontheloose posted:Anyone have any reading on the potential impact on the expansion of the green economy/fuel cell vehicles/higher efficiency vehicles? Part of the reason there was such a push for these type of cars was because gas was spiraling out of control. I don't want cheap oil to ruin progress on that front. Emissions will be reduced simply because the standards we have today are better than 10 years ago and cars are being cycled out. I would say this probably lessens the pressure to develop an electric vehicle*, though (although that has fossil fuel implications for now anyway). *As in, a sub $30k 300 mile range electric vehicle, aka the holy grail of driving.
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Dec 13, 2014 21:22
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computer parts posted:Emissions will be reduced simply because the standards we have today are better than 10 years ago and cars are being cycled out. I would say this probably lessens the pressure to develop an electric vehicle*, though (although that has fossil fuel implications for now anyway). Tesla appears to be getting the best range for a pure electric vehicle right now, my boss just purchased a Tesla S, 200 mile range. The new VW eGolf only gets around 90 miles....
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Dec 13, 2014 21:24
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CommieGIR posted:SUV and Pickup sales are up I'm thinking about buying one.
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Dec 13, 2014 21:24
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I disagree with the OP, OPEC not cutting supply has allowed the price to drop, but ultimately this was likely caused by a combination of slower growth in China and a lesser extent than Europe and a overvalued oil market. So you have: 1. An over-valued market 2. Over-expectations of growth especially in China 3. Inability to control price through supply
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Dec 13, 2014 21:25
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CommieGIR posted:Tesla appears to be getting the best range for a pure electric vehicle right now, my boss just purchased a Tesla S, 200 mile range. Yeah, the Teslas are basically perfect except they cost about twice of what most people want.
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Dec 13, 2014 21:31
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All taxis and the majority of commuter cars over here in Thailand have been converted to NGV. I was always surprised this never happened in America. Like you buy a gas car here and go pay some guy a couple hundred bucks to make it an NGV car.
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Dec 13, 2014 21:33
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computer parts posted:Yeah, the Teslas are basically perfect except they cost about twice of what most people want. Or what we can afford, which is the biggest problem for widespread use.
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Dec 13, 2014 21:35
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ReindeerF posted:All taxis and the majority of commuter cars over here in Thailand have been converted to NGV. I was always surprised this never happened in America. Like you buy a gas car here and go pay some guy a couple hundred bucks to make it an NGV car. This is becoming common among small shipping and logistics companies, because NG is so cheap in the US as well, I don't know how much the price drop will set it back, but I can imagine most future oriented companies are aware that these price drops won't last forever.
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Dec 13, 2014 21:38
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You also see it in Turkey and parts of the forever Soviet Union, I know that their particular retro-fitting (having a big old gas tank in the trunk) may not be legal in the US. Anyway, if you look at the Ruble, it is a pretty clear case of a petro-currency, its decline has been clearly inline with oil prices. There is still a push to blame it on sanctions both in and outside of Russia but that is wishful thinking. If a story says "a combination of sanctions and oil prices" they are hiding the ball, it far more to blame on oil prices than anything else. Also, I think the public hasn't fully realized how much energy prices depend on certain expectations of Chinese growth and how influential turmoil in their shadow banking industry can be.
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Dec 13, 2014 22:41
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Anyone trading commodities would be mentally challenged, I think, not to buy oil with a long term view now lol
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Dec 13, 2014 22:43
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Ardennes posted:I disagree with the OP, OPEC not cutting supply has allowed the price to drop, but ultimately this was likely caused by a combination of slower growth in China and a lesser extent than Europe and a overvalued oil market. OP mentioned China, and you're right on that. But there's not really a "value" on the oil market. It's simply supply/demand, and short term speculation. OPEC is making sure there is lots of supply, thus driving down the price. On another topic....I've posted about it a bit in the Venezuela thread, but that country is now on the precipice of a default (over a 90% chance in the next few years), and might face a complete political collapse. The leader, Maduro, is an incompetent fool who governs, poorly, with propaganda.
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Dec 13, 2014 23:06
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Arkane posted:OP mentioned China, and you're right on that. But there's not really a "value" on the oil market. It's simply supply/demand, and short term speculation. OPEC is making sure there is lots of supply, thus driving down the price. I was more commenting on the priority of the list he created. I think this is where it gets tricky, its price isn't necessarily determined only by supply/demand and there are other influences at stake. OPEC by making sure supply is steady is doing nothing to arrest the decline in price but ultimately there is much more at stake than reduced demand in itself but the expectation of reduced demand. Consumption hasn't dropped and supply hasn't necessarily changed very much since July (at least to reflect the chaos) but there has been a massive retreat in market expectations for future prices. quote:On another topic....I've posted about it a bit in the Venezuela thread, but that country is now on the precipice of a default (over a 90% chance in the next few years), and might face a complete political collapse. The leader, Maduro, is an incompetent fool who governs, poorly, with propaganda. The question is what will happen afterwards, you can say Maduro is a fool (I don't necessarily disagree) but the nation isn't necessarily going to be united without him. If anything the likelihood is a chaos since politics is on a class basis in Venezuela and the army is heavily tied to the government. Also, a right-wing government would need a lot of foreign aid since it would be in the same situation as the current government is, Venezuela has been reliant on oil exports for a while. Basically, the only thing to save Venezuela would be higher prices for oil, under any government. Ardennes fucked around with this message at 01:14 on Dec 14, 2014 |
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Dec 13, 2014 23:17
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tbp posted:Anyone trading commodities would be mentally challenged, I think, not to buy oil with a long term view now lol Any commodity whether oil or grain will vary greatly over time.  All the companies just basically had a feast period after the 2009 recovery period in which brent crude was round $75-$100, now comes the famine side due to oversupply. etalian fucked around with this message at 01:10 on Dec 14, 2014 |
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Dec 13, 2014 23:27
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Ardennes posted:
I know we haven't seen eye to eye on some issues previously, I see your analysis in this oil discussion thread as spot-on. Its not just turmoil in shadow banking--the best proxies I know for Chinese economic health, monthly change in highroller gambling income from baccarat--seem to be down 30% from this time last year in Vegas and I don't attribute that to the corruption crackdown. If anything, you should be seeing increased activity in Vegas due to the Macau hubub and impending purge. I'd say that low energy prices are here to stay for at least 3-5 years, even considering the potential for the collapse of Nigeria into a DRC-like failed state and Venezuela into a Libya-like unstable regime. If anything, the oil producing nations and African nations with lowest-cost proven reserves ($24-$38 extraction in Uganda) are one of the larger purchasers of lower-quality Chinese manufactured goods. The decline in margins from energy production in those nations will negatively impact Chinese economic growth, instigating additional capital flight from China and resulting in further purges to raise liquid foreign reserves. Something you've mentioned is the conversion of vehicles in the US to LNG fuel. I know of several mid-sized trucking firms who have begun just that, and I came across this calculator which may be useful for figuring stuff out: http://www.cumminswestport.com/fuel-quality-calculator One other thing to keep in mind is that, for new locamotives, there is no need to keep engines idling and burning fuel due to advances in AC converter technology. I wonder what the quantification of the total fuel demand reduction from switchover to to quickstart locomotive systems is for America.
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Dec 13, 2014 23:48
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My Imaginary GF posted:I know we haven't seen eye to eye on some issues previously, I see your analysis in this oil discussion thread as spot-on. Its not just turmoil in shadow banking--the best proxies I know for Chinese economic health, monthly change in highroller gambling income from baccarat--seem to be down 30% from this time last year in Vegas and I don't attribute that to the corruption crackdown. If anything, you should be seeing increased activity in Vegas due to the Macau hubub and impending purge. There are structural problems with the Chinese economy that I think are some way comparable to Japan during the late 80s. However, China has its own domestic issues (it's banking system obviously works differently) and you need to pick them apart to get a fuller picture of the situation. I agree that it is much bigger than an anti-corruption purge. quote:I'd say that low energy prices are here to stay for at least 3-5 years, even considering the potential for the collapse of Nigeria into a DRC-like failed state and Venezuela into a Libya-like unstable regime. If anything, the oil producing nations and African nations with lowest-cost proven reserves ($24-$38 extraction in Uganda) are one of the larger purchasers of lower-quality Chinese manufactured goods. The decline in margins from energy production in those nations will negatively impact Chinese economic growth, instigating additional capital flight from China and resulting in further purges to raise liquid foreign reserves. If I had play the odds I think prices will pick up some of their losses in a year or two, but be depressed from their highs afterward (using 2009 as a comparable example). I am not tied to that projection though and we will see how deep this falling knife is going to cut. As for consumer consumption of oil countries, it may have some moderate effect, but Europe and the US still import a ton of Chinese exports. One thing is that European growth is slowing down, and we may be on the verge of Eurocrisis part 2 (rather than Eurocrisis 2). In addition, consumer spending in the US has recovered to some extent but according to Gallup polling it still hasn't recovered to 2008 levels. It may very well be there be a lag between the massive readjustment we are in the middle of, a period of moderate recovery (as for as oil prices) then another drop if the debt situation in Europe destabilizes. Greece is the usual canary in the coal mine as far as European debt sustainability goes, and yields are starting to rise again. Of course then you have other situations like Ukraine, not a giant consumer of goods, but it is undergoing it's own fiscal crunch and civil war/invasion. So I don't necessarily disagree that a drop in consumer spending in developing oil producing states won't have an effect (they consumer goods like anyone else) but I think it one part of a whole. Now, the question is would lower consumer spending in those states outweigh cheaper energy prices in China? That I am not so certain of. quote:Something you've mentioned is the conversion of vehicles in the US to LNG fuel. I know of several mid-sized trucking firms who have begun just that, and I came across this calculator which may be useful for figuring stuff out: I wonder how much this would be slowed by cheaper diesel prices if they stay depressed, while natural gas prices have only fallen moderately in comparison. It can be calculated out but I don't know the finite dynamics of trucking with natural gas and at what price point it doesn't sense. In Turkey for example, the prevalence of natural gas conversion is highly correlated with fuel taxes, and the fact Turkey produces very little of its own oil (admittedly it doesn't produce much gas either). That said, even though theoretically Turkey would be helped by lower oil prices, the Turkish economy many other problems including a greatly softened currency (not Ruble soft though). Ardennes fucked around with this message at 01:28 on Dec 14, 2014 |
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Dec 14, 2014 01:12
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etalian posted:Any commodity whether oil or grain will vary greatly over time. What? Of course, that's volatility. You'd be retarded to think that it's not going to go back up
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Dec 14, 2014 01:22
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tbp posted:What? Of course, that's volatility. You'd be retarded to think that it's not going to go back up Hey, somebody could come up with cold fusion or something tomorrow. Though that's less likely as low oil prices cause most people to go 'smoke em if you got em' and drat the environment.
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Dec 14, 2014 01:29
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Ardennes posted:Of course then you have other situations like Ukraine, not a giant consumer of goods, but it is undergoing it's own fiscal crunch and civil war/invasion. I agree with what you've stated for the most part, with regards to China, I am of the firm opinion that global instability has been driving down US interest rates and explains the failure of QE to increase interest rates in America. Simply, too much of the world has been following bad practices for government and policy implementation, and the dollar has become a truely global, single-currency standard. Cheaper energy prices in China mean nothing to Chinese capital flight if the purge is not paired with actual, impactful structural reforms. No amount of domestic stimulus in China will correct that unless its paired with extreme austerity in all unprofitable sectors and imposition of democratic institutions. Clearly, Hong Kong demonstrates that Beijing has no intention to implement basic reforms and austerity. Yes, energy prices are cheaper in China---so what? That does nothing to increase Chinese tax revenue; it does nothing to stimulate demand for high-value Chinese goods. In fact, low energy prices decrease PRC tax revenue and expedite capital flight; low energy is bad for China when you consider the structure of Chinese political order. Its extremely similar to Nigeria and Venezuela: some economic diversification, middle-income nation, except revenue of liquid foreign currency is extremely dependant upon high margins in very few sectors. With the collapse of coal margins, oil and foreign energy has made up an increasing share of PRC revenue of liquid foreign reserves. All the PRC's bond holdings are nice; you can't cash $1 trillion of US bonds in 1 year, we won't let you. The treasury will let you cash them when they mature and not before unless you want to sell them to us for mills on the Benjamins. And frankly, that's when the yuan begins to resemble the ruble in value.
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Dec 14, 2014 01:30
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My Imaginary GF posted:I agree with what you've stated for the most part, with regards to China, I am of the firm opinion that global instability has been driving down US interest rates and explains the failure of QE to increase interest rates in America. Simply, too much of the world has been following bad practices for government and policy implementation, and the dollar has become a truely global, single-currency standard. QE has had the effect of very modestly lowering unemployment, and therefore restoring some amount of consumption. The dollar has been the reserve currency for a long time, if anything it is more than that has been since the Euro showed up. quote:Cheaper energy prices in China mean nothing to Chinese capital flight if the purge is not paired with actual, impactful structural reforms. No amount of domestic stimulus in China will correct that unless its paired with extreme austerity in all unprofitable sectors and imposition of democratic institutions. Clearly, Hong Kong demonstrates that Beijing has no intention to implement basic reforms and austerity. Yes, energy prices are cheaper in China---so what? That does nothing to increase Chinese tax revenue; it does nothing to stimulate demand for high-value Chinese goods. In fact, low energy prices decrease PRC tax revenue and expedite capital flight; low energy is bad for China when you consider the structure of Chinese political order.[/quote] It allows the Chinese to lower their costs, which theoretically would allow their export industries to increase their profit margins. If the Chinese can stabilize their exports, it would help stabilize growth to some extent. That said, I deeply disagree with you on immediate and extreme austerity though in this case, as it would have a socially destabilizing effect that may negate immediately fiscal benefits. The Chinese are facing a crunch, but they need to manage it carefully and democratic institutions require a civil society, and civil society requires a functioning economy for broader society. I am not defending the Chinese way of doing things, but shutting down state industries en masse could jeopardize the situation greatly. Granted, if I wanted to see the Chinese crash and burn, it would be something though. As for liquid reserves in oil and the type of revenue China gets from them, I would have to see something that proves that the revenue China is getting from overseas projects trump the importance of cheap prices in the Chinese export sector quote:Its extremely similar to Nigeria and Venezuela: some economic diversification, middle-income nation, except revenue of liquid foreign currency is extremely dependant upon high margins in very few sectors. With the collapse of coal margins, oil and foreign energy has made up an increasing share of PRC revenue of liquid foreign reserves. I do agree that China may have a fiscal crunch at some point as they simply will be sapped of many of liquid resources to cover the shortfall, but they need to try to weather the storm the best they can without massive social upheaval. One thing is I could see "democracy" in China working more like Russia than anything, complete economic chaos and then eventually a strong man (Or a series of strong men) comes to power. Ardennes fucked around with this message at 02:03 on Dec 14, 2014 |
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Dec 14, 2014 02:00
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Ardennes posted:I do agree that China may have a fiscal crunch at some point as they simply will be sapped of many of liquid resources to cover the shortfall, but they need to try to weather the storm the best they can without massive social upheaval. One thing is I could see "democracy" in China working more like Russia than anything, complete economic chaos and then eventually a strong man (Or a series of strong men) comes to power. More likely you'll get a One-Party-but-not-in-theory situation like the LDP in Japan. Open elections but everyone votes for the relabeled Communists anyways
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Dec 14, 2014 02:06
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icantfindaname posted:More likely you'll get a One-Party-but-not-in-theory situation like the LDP in Japan. Open elections but everyone votes for the relabeled Communists anyways It might be a "managed democracy" like Russia where you have a ruling party/ruler and some other parties are mostly for show. However, like Russia, I think they may also go down a more nationalistic route because it is the only way to compensate for "reduced expectations" like the Russians did. The current government already uses nationalism as much as it can and I can't see that disappearing unless something else replaces it. LDP for example at least during the post-war period was far more restrained in that sense (Abe is something else though).
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Dec 14, 2014 02:18
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Ardennes posted:It allows the Chinese to lower their costs, which theoretically would allow their export industries to increase their profit margins. If the Chinese can stabilize their exports, it would help stabilize growth to some extent. That said, I deeply disagree with you on immediate and extreme austerity though in this case, as it would have a socially destabilizing effect that may negate immediately fiscal benefits. The Chinese are facing a crunch, but they need to manage it carefully and democratic institutions require a civil society, and civil society requires a functioning economy for broader society. That's assuming that those industries are profitable. For a lot of Chinese industry, there is no profit in production, only make-work to keep the population busy. I don't see the money in increased exports. There's too much shipping capacity for exports to be profitable without significant discount and state subsidization. Targeted austerity would raise some unprofitable SOEs into profitability. You open up the SOEs in logistics and infrastructure to austerity and phase-out of state subsidization, and you raise the revenue for your other, import/export-orientated industries. Pair this with an actual independent judiciary--it won't happen overnight, granted, and will take a generation to achieve, yet significant progress must be made while targeted austerity is implemented in order to prevent cascading capital flight. Foreign investors are willing to accept some uncertainty in your market, they aren't willing to accept losses for purposes of pure political power-plays which don't benefit them directly. It's time for a Chinese glaznost, before they're forced to perestroika.
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Dec 14, 2014 04:17
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In the attempts to predict the outcome of this we have: Oilprice.com is placing it's bets Opec pushing through and crushing the United States and other energy producers. It's actually an interesting analysis, albeit he hinges his bets on OPEC and other helping out Venezuela in order to maintain solidarity. http://oilprice.com/Energy/Oil-Prices/Oil-Wars-Why-OPEC-Will-Win.html Wallstreet is betting on Venezuela and Russia to default, with as stated an over 90% odds that Venezuela is going to break. Some analyists think Russia can get by on it's sovereign wealth fund. http://money.cnn.com/2014/12/12/investing/venezuela-russia-default-wall-street/ Meanwhile Alberta, Canada is terrified to poo poo and future production ventures are already being shelved. Worse Alberta's current pipelines cannot keep up with production. The consensus is if this keeps up, the province is hosed. At least though the government in Alberta has a low debt, so at least it can run a deficit for a while, helping deal with the impact. https://ca.finance.yahoo.com/blogs/balance-sheet/alberta-saskatchewan-can-easily-weather-oil-price-194239185.html
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Dec 14, 2014 05:27
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My Imaginary GF posted:That's assuming that those industries are profitable. For a lot of Chinese industry, there is no profit in production, only make-work to keep the population busy. Exports are their only viable source of keeping growth going at this point, and their own interior consumption simply isn't enough. Cheaper energy makes those industries more viable. quote:Targeted austerity would raise some unprofitable SOEs into profitability. You open up the SOEs in logistics and infrastructure to austerity and phase-out of state subsidization, and you raise the revenue for your other, import/export-orientated industries. Pair this with an actual independent judiciary--it won't happen overnight, granted, and will take a generation to achieve, yet significant progress must be made while targeted austerity is implemented in order to prevent cascading capital flight. Foreign investors are willing to accept some uncertainty in your market, they aren't willing to accept losses for purposes of pure political power-plays which don't benefit them directly. The problem is the communities tied to those industries will grow dysfunctional, and there many of them out there. It would be the same situation you had in Russia where closing state industries ultimately led to a lot of smaller cities/towns becoming dysfunctional, and while Moscow swelled in population leading to a housing crisis and overcrowding. In China it would be even worse, China doesn't need millions of pissed off workers flooding their cities and then "legacy" cities to have to subsidize further. Investors also get nervous about political chaos and uncertainty, not to mention growing nationalism. Also, targeted austerity programs often lead to expenses that negative much of the gain from them. Many Chinese SOEs are inefficient but you need a way to smoothly replace them without devastating regional economies. One thing is China really can't go the Eastern Europe route of slowly pulling themselves up using increasing foreign trade to Western Europe, there just isn't a rich market for them to tap in comparison like pre-2008 era Europe. quote:In the attempts to predict the outcome of this we have: I don't know if I would bet on Venezuela, I could see the rest of OPEC allowing it to suffocate and they don't have the currency reserves to last while the government has a political imperative to keep on doing what they are doing to the bitter end. That said, I see Venezuela becoming a basket-case and I don't see any chance for political unity happening. One thing is the Venezuelan poor aren't likely to take a new regime sitting down and neither will the army. Russia has reserves, but it is a question how much time can they hold on and I think it is less than 5 years. One thing though is Russia actually has low foreign debt, they just don't have the ability to borrow and a deal with the IMF is going to be very economically and politically costly for them. Unless, the West gives them a out, it is going to be a bitter fight for them. However, pulling out of Crimea (less so Eastern Ukraine) will have political consequences. There is also the distinct possibility of Ukraine haven't to a managed default as well. They are getting IMF money, but they also have to pay existing debt which is sapping their resources. Btw, this can easily become a general "global state of economics" thread because so much of global economics is tied to energy and oil. Ardennes fucked around with this message at 05:52 on Dec 14, 2014 |
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Dec 14, 2014 05:40
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Infographics that summarize the oil picture in the United States: http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/
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Dec 14, 2014 05:53
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Ardennes posted:Exports are their only viable source of keeping growth going at this point, and their own interior consumption simply isn't enough. Cheaper energy makes those industries more viable. I don't know why cheaper energy makes those industries more profitable. If those industries weren't viable between 2008 and 2014, they're leveraged up to their rear end and cheap energy will only force a liqudity crisis as energy-related sectors fail to meet their debt servicing obligations. Of course austerity is hard. Thats why you implement structural reforms and increase funding for your bureaucracy and human development efforts following best-practices during growth years: if you don't, you only worsen your bubble. Post-2008 crash, China has turned to increasing foreign trade with Africa, particularly those sub-saharan states which are mineral-rich and development-poor. That already tapped that market and now those operations are reaching insolvency with the decline in energy prices. How will China finance its Mombasa-Kisangani railroad project when the Lake Albert projects are idled? Will China abandon its project commitments, and deal with clients looking for new masters, or will it continue to accumulate debt servicing obligations for flashy projects that won't be solvent for at least 3 decades? If theu abandon their project commitments, how do they expect to have markets willing to purchase their textiles without tarriffs rather than rekindling their own manufacturing base through foreign direct investment-friendly policies and practices? Once those factories leave China for Africa, they're gone. African labor is cheaper than Chinese labor. The logistics are reaching sufficient maturity that regions of SSA are more attractive business environments than China. Hell, the pitch is already, "You're Sears and you have a chance to put your foot in China in 1979. Do you take it, or wait until Wal-Mart hems in on your clothing market share with their cheaper products?" I really don't see any easy outs for China. There are only bad and economically disruptive options, and politically-expediant, structurally far worse choices. Bubble's gonna pop sometime, get out early and come to Africa.
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Dec 14, 2014 06:04
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My Imaginary GF posted:I don't know why cheaper energy makes those industries more profitable. If those industries weren't viable between 2008 and 2014, they're leveraged up to their rear end and cheap energy will only force a liqudity crisis as energy-related sectors fail to meet their debt servicing obligations. The difference I see is that China is politically stable, and Africa generally is not. Outsourcing companies can make deals with the confidence that their investments are safe for the long term. You are more familiar with Africa than I am--can the same be said for SSA? Are there African countries currently politically stable enough for massive investment like that?
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Dec 14, 2014 06:52
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My Imaginary GF posted:I don't know why cheaper energy makes those industries more profitable. If those industries weren't viable between 2008 and 2014, they're leveraged up to their rear end and cheap energy will only force a liqudity crisis as energy-related sectors fail to meet their debt servicing obligations. China still has plenty of export industries that are profitable though, and cheaper energy increases their margins and the likelyhood is they are far more important to the Chinese economy to the energy sector itself. quote:Of course austerity is hard. Thats why you implement structural reforms and increase funding for your bureaucracy and human development efforts following best-practices during growth years: if you don't, you only worsen your bubble. Obviously it is too late, and even it wasn't, austerity isn't going to help them with economic turmoil in the countryside or sudden drastic rise in unemployment. If anything it will provide new issues the Chinese have to deal with. China's bureaucracy is also going to remain corruption and human development efforts will be uneven at best. quote:Post-2008 crash, China has turned to increasing foreign trade with Africa, particularly those sub-saharan states which are mineral-rich and development-poor. That already tapped that market and now those operations are reaching insolvency with the decline in energy prices. How will China finance its Mombasa-Kisangani railroad project when the Lake Albert projects are idled? They will have to wind them down and eat it, everyone knows they are going to have to eat them at some point. Many of them were bad projects to begin with and dead assests, China got access to markets in exchange for the expense but it was a hard expense. Ultimately. there is no way to get money out them. Cheap energy at least gives their export industry more breathing room to keep the economy going on in the mainland, there was no way many of those African projects were going to work out. quote:Once those factories leave China for Africa, they're gone. African labor is cheaper than Chinese labor. The logistics are reaching sufficient maturity that regions of SSA are more attractive business environments than China. Hell, the pitch is already, "You're Sears and you have a chance to put your foot in China in 1979. Do you take it, or wait until Wal-Mart hems in on your clothing market share with their cheaper products?" I don't disagree there, however China has only one strong game going and even if growth is going to decline, austerity isn't going to help them especially since you are only going to end up with a 1990s era Russia situation. High energy prices weren't going to bail them out from African development, and their lunch isn't just being eaten by Africa but much of the developing world. I am about as far as a Chinese bull (if you know my posting), but I know ins and outs of talk of Western standards of development and how often they fail. Ardennes fucked around with this message at 07:34 on Dec 14, 2014 |
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Dec 14, 2014 07:27
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Cantorsdust posted:The difference I see is that China is politically stable, and Africa generally is not. Outsourcing companies can make deals with the confidence that their investments are safe for the long term. You are more familiar with Africa than I am--can the same be said for SSA? Are there African countries currently politically stable enough for massive investment like that? Its a fairly complicated and nuanced issue, and the answer is usually, "It depends." Lets take the textile industry as an example. Many Americans are familiar with the end of textile manufacuring over the 80s, with the final dead of the union movement in the Carolinas in the early 90s. A similar process played out throughout Africa; there's a reason why, when you see pictures of "poor" Africans, many are wearing discarded, second-hand sports apparel. What isn't discussed as often is why the modern textile manufacturing sector in Africa experienced the same sort of declines and trade union movement death. Take Zimbabwe: Mugabe is China's man, and in the early 90s, China leaned heavily on their man to sign an agreement granting tarriff exemption for Chinese textiles. What followed was the collapse of an entire, locally-owned and operated, vertically-integrated industry. By 2002, Zim's domestic demand for cash crops used in textiles was so weak and the sector so devastated that, when China began to threaten tarriffs on cash crop exports, Mugabe was left with only two choices: share power or land reform. He chose land reform and poo poo hit the fan for the Zim economy. Personally, Mugabe is an intelligent, deeply intellectual man. He's also racist. Yes, that's the only way that it can be put: Mugabe was so adverse to power sharing with Zimbabwean whites that he chose the path of black power. I empathize with how he developed his hatred; given his personal experiences, who can't? In Mugabe's mindset, power sharing with the white industrials--who were, by this time, gleefully shouting with the trade unionists 'I told you so' on the Chinese trade agreement--was tantamount to returning the nation to apartheid. So Mugabe examined his options, and went with the evidence-based one for least-worst outcome: he instituted small-holder land redistribution as a racially-retributive policy in order to meet his obligations to China. They were demanding more cash crops for cheaper than before: That's exactly what they got. At its face, land reform was wildly successful with meeting its program targets--it delayed the civil war with MDC, allowed Mugabe to consolidate power, trebled and quadrupled agricultural production for various crops, and won him some token developmental aid from China and Russia. It also tanked the economy, destroyed the currency, and ensured a foreign-financed, pro-Western junta would attempt to seize power as soon as Mugabe died. The generals are waiting for Mugabe's death before they make their move, and make no mistake, they are making their moves and aligning with America and her allies or China. America is accountable to her elected officials and cannot directly finance a genocide; China has no qualms so gently caress you and keep the platinum and cotton going out or else we'll ship 5,000,000 machettes, 77,777 AK-74s, and 777,777,777 magazines to whoever promises to ship out more platinum and pick more cotton, by the way for 2,000 pairs of elephant tusk we can also send you some SAMs and ASMs. And that's where you are with textile manufacturing in the southern region of Africa. I'd highly advise against any Chinese manufacturers which use platinum-intensive or cotton-centric processes; the coming civil war in Zim is likely to be brutal for the if its launched either too soon or too late. Launched just right, and with 73% of the population supportive of MDC, expect to see a new junta which liquidates all Chinese assets they can find, and which we assist with their locating of. So, Zim-specific, avoid telecoms investment, textile manufacturing, non-platinum mineral extraction, and retail establishments; when the firesale really begins, keep an eye out for who wins the platinum concession first. One of the key examples a successful implementation of the above, that is, toppling a dictatorship and restoring a workable government, resulting in a rapidly developing and emerging regional bedrock of stability, is Uganda. After Amin became the Arab's man, and Museveini started edging towards becoming Ghaddafi'd buttboy in the 80s, there was hesitancy for direct foreign investment in Uganda. With the end of the cold war, the two world wars which occured, and the developments in Kenya, things had changed, and by 2006, Uganda had become firm in its commitment towards alliance with America for global peace and security, going so far as to be rumored to host blacksites and accept contracts, awarded to entirely white-staffed, white-owned, and white-managed, that leased---and here's the real loving kicker, or so I've heard rumored---a former PLO training camp where Black September trained for some of its most publicity-generating operations, to an Israeli firm with certain "enhanced" "rectal" "forced" "practices" "committed" "as an unambiguous example of the use of torture." Now that's a firm loving American ally, right there, with political stability, shitload of riches, and extremely business-friendly environment. I'd particularly suggest the Ugandan or Tanzanian LEO satellite high-tech sector as somewhere with extreme profit potential, especially as low-cost LEO vehicles become cost-accessible to vertically integrate logistics, manufacture, and ensure product delivery from a single-nation compound. Don't just take my word for it, look at where the American multinational airlines have their eyes set and are talking about. And for that, true development with cost-competitive operations, no amount of lovely-rear end Chinese, phased-pulsed direct current, one-time grant of aid, is gonna beat your ministry's purchase of a good 'ol GE AC quickstart locomotive. Whats China gonna do, invade Uganda over the idling of their energy production while still granting field leases to French, American, and other Anglo-western firms? Good loving luck. While its poo poo to fight a landwar in Asia, its even more poo poo to fight a landwar as a communist dictatorship through mountainous jungle in Africa, just ask the Cubans about that. So yes, there are American- and Western-aligned SSA nations that are open for business with less risk and lower labor costs than China. Just ask the expats in Angola how friendly of a Western business environment it is [WARNING: DO NOT LEAVE YOUR SECTOR IN ANGOLA. DO NOT.] My Imaginary GF fucked around with this message at 07:47 on Dec 14, 2014 |
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Dec 14, 2014 07:44
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Texas is looking at some upcoming hard times due to the oil price fall as well. Our state budget is set every two years, and has a projection for oil prices built into it (both to estimate the tax revenue from oil production and for the sale of oil and natural gas from state-owned fields). They're usually pretty conservative when setting the price estimate, but for the fiscal year 2015 the estimate is $80.33. So even with all the other conservative estimates in all the other revenue areas, 2015 is going to have at least some kind of shortfall. And when the next legislator comes in to do the next two-year budget, they'll be facing that and the fact that the oil price estimates will probably be in the $50-$60 range, if not lower. Now, on the one hand oil and gas revenue isn't as big a part of the state's revenue as it was in the 80s, when the oil price crash completely hosed us. We even have the Rainy Day Fund where we've been stashing excess oil and gas revenue since the 90s. On the other hand, we're about to see a completely tea-party dominated state legislator who are going to look at any kind of shortfalls and immediately react to them by cutting spending (which was already cut to the bone by the post-financial crisis 2011 legislator for the FY2012-2013 cycle, and was just partially restored by 2013 legislator) and by foisting off more things as regressive per-use fee-based services (like the all the new toll roads that are going up). So yea, we'll pull through, but we probably won't continue to be doing so much better than the rest of the country economically.
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Dec 14, 2014 08:17
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BoA analysts see the US brent crude price settling around $50 per barrel: http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.html 
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Dec 14, 2014 17:32
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Freakazoid_ posted:In Canada: Canada is experiencing a housing bubble (forum thread here), in part because of shale oil. They can't really handle the low prices. At least one business is already looking into bankruptcy proceedings. This could be the needle that pops the housing bubble, or not. If nothing else, Alberta's about to head into "interesting times" territory. One year previous to this, the government made a large collection of snap funding cuts to post-secondary education, healthcare, etc. (you can see a reasonably complete list at the bottom of this article) for similar reasons: the price of oil had tanked well below expectations. The rough calculation given for this year was that every $1 drop in the price of a barrel of oil equates to around $215 million in government revenue. Right now, that's looking like a $7 billion drop in revenues, which is pretty horrendous. You've got all sorts of problems poking up on the horizon. Post-secondary institutions that aren't named the University of Alberta or the University of Calgary have been struggling to pay the bills as it is, since last year's post-secondary cuts knocked the wind out of a lot of the budgetary sails. The deferred maintenance costs for hospitals and other health care facilities is fast approaching (if not already at) the $1 billion mark, and some of them are pretty damned serious (like water pipes freezing and bursting because of faulty construction). There's a ton of deferred maintenance for primary schools, as well, though I'm not sure of the exact number involved, as well as promises to build new schools that are increasingly appearing to be smoke and mirrors. This is all riding on a weird political situation, as well. The current Progressive Conservative (I want you to repeat this name outloud several times just for the amusement factor) government faced a major crisis over the 2013 budget fiasco and the subsequent scandals involving Premier Allison Redford. They've adamantly refused to look at new revenue sources and are insistent that they can somehow continue to find "efficiencies" ($7 billion of them?), and it's now becoming increasingly clear that this position cannot hold for the long term. They've gotten very lucky because of how incompetent the alternatives are: the Wildrose Party, the PC's closest right-wing contenders, managed to lose practically all of their momentum off of the back of disappointing byelection results, and the party appears to be disintegrating internally. The New Democratic Party and the Liberals seem mostly reduced to talking heads in the press. If they've made any attempts to capitalize off of the coming fiscal problems, it hasn't shown through. The results of the 2016 election will depend a lot on how things are managed in the coming year, I suspect. Either way, things are going to be bad for anyone who isn't already fabulously wealthy, with public institutions likely seeing the biggest bite taken out of them.
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Dec 14, 2014 17:55
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Speaking from an Albertans perspective, what's probably going to happen here is a pretty hard reduction in new projects. Existing projects will actually mostly be completed. In terms of a longer term low price of oil the pain is probably going to be in the shale plays. Alberta heavy oil tend to come from long life low decline assets as compared to shale plays which tend to be short life high decline. This means that existing heavy oil plays, while ridiculously capital intensive, require nearly all their capital upfront. This means that once the money is spent the actual operating costs are quite low and production usually doesn't really decline much over the medium term. Shale plays on the other hand require large, continuous capital injections to just maintain production. The US shale oil plays require literally thousands of wells a year simply to maintain existing production, much less grow it. This is extremely expensive, especially considering that most of these wells have an economic life of about ten years or so. This kind of capital expenditure is going to weigh heavily on small and mid size E&P companies. I don't know if they're going to make it without going bankrupt or getting bought at fire sale prices. In contrast, though considered a high cost producer, Canadian production can just hold steady with minimal capital expenditure. It's going to be interesting to see how the industry looks in five years or so. As for Alberta, yup. The next few years are going to suck. We really do have the worst governments. On the bright side, while construction is going to tank, there probably won't be too many staffing cuts in the actual oil industry. Last count I saw was the industry employed ~220,000 people directly. I'd be surprised if we lost much more than 10% at worst.
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Dec 14, 2014 18:02
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Another factor is the amount of progress in the oil industry in terms of new cost reducing technology for both production and exploration. So basically well capitalized western oil companies can handle the new market rate much better than places like Iran or Venezuela who need a much high price per barrel to survive.
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Dec 14, 2014 18:10
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Freakazoid_ posted:
There's more potential bad news in the U.S. than just shale. Producing oil is expensive, and as such a lot of oil producers have issued high yield bonds to finance their operations. If oil prices remain low for long, all kinds of U.S. oil companies across the board will have issues paying off debts or continued borrowing in the future.
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Dec 14, 2014 19:06
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sd6 posted:There's more potential bad news in the U.S. than just shale. Producing oil is expensive, and as such a lot of oil producers have issued high yield bonds to finance their operations. If oil prices remain low for long, all kinds of U.S. oil companies across the board will have issues paying off debts or continued borrowing in the future. Yes an no. Are small and medium companies going to get in trouble? Yes. However the U.S. has a large number of very well capitalized large and medium sized oil companies that can an will acquire these distressed companies and refinance their debt. What's going to happen is a lot of consolidation rather than collapse.
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Dec 14, 2014 19:09
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etalian posted:BoA analysts see the US brent crude price settling around $50 per barrel: I would look for those break even points to increase in the near future before technology advances can turn them in the other direction. Shale wells produce for a ridiculously short time and operators always target what they expect to be the most profitable areas in a reservoir first. Well profitability can fluctuate a lot even within the same field.
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Dec 14, 2014 19:15
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