LONDON – Violent swings in oil prices are destabilizing economies and financial markets worldwide. When the oil price halved last year, from $110 to $55 a barrel, the cause was obvious: Saudi Arabia’s decision to increase its share of the global oil market by expanding production. But what accounts for the further plunge in oil prices in the last few weeks – to lows last seen in the immediate aftermath of the 2008 global financial crisis – and how will it affect the world economy?
The standard explanation is weak Chinese demand, with the oil-price collapse widely regarded as a portent of recession, either in China or for the entire global economy. But this is almost certainly wrong, even though it seems to be confirmed by the tight correlation between oil and equity markets, which have fallen to their lowest levels since 2009 not only in China, but also in Europe and most emerging economies.
The predictive significance of oil prices is indeed impressive, but only as a contrary indicator: Falling oil prices have never correctly predicted an economic downturn. On all recent occasions when the price of oil was halved – 1982-1983, 1985-1986, 1992-1993, 1997-1998, and 2001-2002 – faster global growth followed. Den Rest des Beitrags lesen »
A decade of bingeing on raw materials may leave an even longer hangover
IT WAS only a decade or so ago that Scotland was hit by the “Great Drain Robbery”, the disappearance of 50 manhole covers in Fife. It gave an inkling of the emergence of a new era in commodity markets, spurred by insatiable demand from China. Scrap-metal prices—and so scrap-metal thefts—soared. Africa was over-run by Chinese engineers; Australia elected a Mandarin-speaking prime minister; and emerging markets from Argentina to Zambia relished the rising values of their farmland and mines. The boom was fanned by a weak American dollar, the currency in which most stuff that comes out of the ground is priced.
The gears have now gone into reverse. A resurgent dollar has hammered commodity prices: many have recently fallen below their levels of a decade ago.That is a fate not shared by other tradeable assets: not since the late 1990s have commodity prices been so weak compared with shares (see chart 1). The American economy is strengthening, but by no means enough to encourage thieves to filch bronze bells from Chinese temples to send as scrap to the United States. The impact of its recovery is dwarfed by slowing demand in China, which still consumes about half the world’s metals such as iron, aluminium, and zinc. Den Rest des Beitrags lesen »
NEW YORK—U. S. oil prices fell Monday to a fresh six-year low on concerns that the glut of crude oil is set to grow.
Light, sweet crude for September delivery fell 63 cents, or 1.5%, to $41.87 a barrel on the New York Mercantile Exchange, the lowest settlement since March 3, 2009. Brent, the global benchmark, fell 45 cents, or 0.9%, to $48.74 a barrel on ICE Futures Europe. Den Rest des Beitrags lesen »
One of the biggest banks in the Middle East and the oil-rich Gulf countries says that fossil fuels can no longer compete with solar technologies on price, and says the vast bulk of the $US48 trillion needed to meet global power demand over the next two decades will come from renewables.
The report from the National Bank of Abu Dhabi says that while oil and gas has underpinned almost all energy investments until now, future investment will be almost entirely in renewable energy sources.
The report is important because the Gulf region, the Middle East and north Africa will need to add another 170GW of electricity in the next decade, and the major financiers recognise that the cheapest and most effective way to go is through solar and wind. It also highlights how even the biggest financial institutions in the Gulf are thinking about how to deploy their capital in the future. Den Rest des Beitrags lesen »
As crude tumbles in its worst summer ever, experts are lining up to forecast exactly how low it will go.
Among the lowest so far is $10 to $20 a barrel, which came from Gary Shilling, president of A. Gary Shilling Co., who spoke in a Bloomberg Television interview on Friday. Because fixed costs are already spent, drillers in a “price war” will keep pumping as long as prices are above the cash costs of production, which are below today’s levels of around $49 a barrel in London.
“Formula for success: rise early, work hard, strike oil.”
– J. Paul Getty
This week’s yuan devaluation was big news, but it’s really part of a much bigger saga. Events around the globe are combining to create huge economic change over the next few years. We are watching giant, multidimensional chess games played by some master players.
Energy is the chessboard that connects all the players. What happens when the board changes shape in the middle of the game? If you don’t know the new energy landscape, you’ll have a hard time playing to a draw, much less winning.
Today I’ll tell you about some big shifts in the energy industry. These shifts are about as positive as can be, unless you need high oil prices to run your country. In the long run, these changes are bullish for the whole world, which I think this will surprise many of you. And though we’ve been used to thinking about energy and technology as two different facets of modern life, today they are inextricably linked.
Source: Project Syndicate
MOHAMED A. EL-ERIAN
Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO and co-Chief Investment Officer of PIMCO. He was named one of Foreign Policy’s Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. His book When Markets Collide was the Financial Times/Goldman Sachs Book of the Year and was named a best book of 2008 by The Economist.
LAGUNA BEACH – Oil prices have been heading south again, with a barrel of US crude recently falling below $42 – the lowest level since March 2009, the nadir of the global financial crisis. And, while last year’s sharp price drop was heavily influenced by two large supply shocks, the current decline also has an important demand dimension.
At the same time, oil markets are discovering what it is like to operate under the regime of a new swing producer: the United States. As a result, the price formation process is much clumsier nowadays, with considerably longer adjustment lags. Den Rest des Beitrags lesen »
Yves here. On the one hand, the hyperventilating in this article about the Saudis having to dig into their sovereign wealth reserves to meet budget shortfalls seems considerably overdone. The ratings agencies looked at this issue when Riyadh decided to apply pressure to the emerging US fracking industrial complex, and noted not only could they support their full state spending (as in no oil revenues at all) for years, but they also have unused borrowing capacity. The states that are at risk are the smaller Middle Eastern oil producers.(The article is also troublingly imprecise as to who the Saudi’s “competitors” are. The Saudis are low cost producers of highly prized “light sweet crude”. Iran and Venezuela produce “heavy sour crude” which is economical to produce, generally speaking, at prices of at least $90 a barrel).
On the other hand, the article does not mention what looks to be turning out to be the real elephant in the room, which is the increasing adoption of deflationary policies in major economies all over the world.That means lower growth, which is a negative that no oil producer can surmount. Europe has fully embraced them. China’s surprise currency devaluation, an effort to bolster its flagging growth rate, is tantamount to exporting deflation. Deflation is particularly hard on commodity producers. Den Rest des Beitrags lesen »
Jeffrey Frankel, a professor at Harvard University’s Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.
CAMBRIDGE – World oil prices, which have been highly volatile during the last decade, have fallen more than 50% over the past year. The economic effects have been negative overall for oil-exporting countries, and positive for oil-importing countries. But what about effects that are not directly economic? If we care about environmental and other externalities, should we want oil prices to go up, because that will discourage oil consumption, or down because that will discourage oil production?
The answer is that countries should seek to do both: Lower the price paid to oil producers and raise the price paid by oil consumers, by cutting subsidies for oil and refined products or raising taxes on them. Many emerging-market countries have taken advantage of falling oil prices to implement such reforms. The United States, which is now surprisingly close to energy self-sufficiency, so that the macroeconomic effects roughly balance, should follow suit. Den Rest des Beitrags lesen »
Consumers are delighted by low oil prices and economists anticipate increased global growth. But the low prices are locking many industries into infrastructure that relies on fossil fuels. “High-carbon infrastructure – power plants, pipelines, factories, inefficient buildings, roads and transport vehicles – built now will last and pollute for decades to come,” writes Deepak Gopinath, a writer and analyst based in New Delhi. The low prices suppress demand for new technologies based on alternative fuels. Developing nations account for most global population growth in the energy sector. Delays in developing alternative energies lock countries like China and India into competitive patterns that encourage dependence on fossil fuels. In addition to ending subsidies for fossil fuels, Gopinath encourages taxes on consumption to reduce use and develop funding for alternative energies. – YaleGlobal
Low energy prices lock the world into fossil-fuel consumption and infrastructure – new taxes could encourage alternative
NEW DELHI: The consensus around the collapse in oil prices is that the trend a net positive for the world economy and global growth. Sure, exporters like Venezuela and Russia suffer, but that’s outweighed by the increased spending by governments and consumers with more cash to burn – no small thing when the global economy is suffering from a crisis in demand. Den Rest des Beitrags lesen »