En Español



Very usefull links



PW
Bookstore





Institutional
links


OPEC
\





 




PW
Business Partners

 


IRAQ OIL THE FORUM

 


Blogspots

FxHQ Forex News

The Global Barrel

Tiempo Cultural

Gustavo Coronel

Iran Watch.org

Le Blog des
Energies Nouvelles

News Links

AP

AFP

Aljazeera

Dow Jones

Reuters


Bloomberg

Views and News
from
Norway

 

 

 

 

ISSUES....
Inside, confidential and off the record

 

Oil under $30 is good


 

Oil's plunge is great news for most of us

The collapse in the price of oil is a huge source of anxiety for many financial market participants. I suppose that's understandable.

Investors have been very excited for the past several years about the promise of tight oil, which is extracted by hydraulic fracturing, or fracking, of rock formations where oil is present. This was a powerful, simple story that asset managers and the financial media could understand, since oil is something that almost everyone uses. The fracking boom lured trillions of dollars in investment, and domestic oil output soared, pushing the U.S. close to energy independence and lowering demand for imports from big crude producers.

With the recent dive in oil prices, that all seems like ancient history now: See chart above

The price plunge will wipe out many small companies involved in fracking, as well as plenty of others in oil services. It will cause many high-yield bonds to go into default. It will generate big losses at major energy companies, and will lead to job losses throughout the industry. In the short term, a negative shock to the world economy and the financial markets will probably be the main effect of the oil collapse.

Oil Prices

But only in the short term. Most U.S. industries are consumers of oil and other fossil fuels, not producers. The U.S. is less of a net energy importer than it used to be, but it still consumes more fossil fuel than it produces. The fall in oil prices means that trucking companies are going to be able to buy less expensive gas for their fleets. Construction companies will be able to build office towers and houses more cheaply. Farmers will spend less to plant and harvest their crops. Intel won't have to pay as much to run its microchip plants, nor Boeing to run its aircraft factories.

It will take time for investment to shift to all the industries that will benefit from lower energy prices -- but not too much time. The initial shock from the oil collapse might be negative, but it will be outweighed by the positive effects before too long. In other words, most Americans should be celebrating the oil drop, not lamenting it.

The real danger isn't the decline in oil prices, but the thing that caused most of the decline in the first place: China. The dramatic slowing of China, which has become the workshop of the world, is behind much of oil's latest fall. The slow unwinding of a property bubble, with its attendant debt crisis, will probably continue to exert a major drag on Chinese growth during the next few years.

That means a long slowdown in demand for oil. But more importantly, it also means a drop in global growth . China's slump will ripple across much of the global economy -- resource exporters in Latin America, Africa, Southeast Asia and the Middle East will all feel the pain. Countries that export industrial machinery to China, such as Germany and Japan, will also be hit, as will countries like South Korea and Taiwan whose economies are closely linked with China's.

Although the U.S. and Europe export relatively little to China directly, the reduction in global growth will hurt their economies too. The slowdown in global trade isn't a huge threat to the U.S. economy, but it's a bigger threat than the oil price collapse.

In the long run, we want oil prices to fall, but for the right reasons. We want oil prices to go down as new technologies -- solar power, battery storage, biofuels, hydrogen or whatever -- make the practice of digging up and burning dead dinosaurs obsolete. Eventually we want oil to go the way of whale oil -- once a critical energy source, now a historical curiosity.

Today, the tumble in the oil price is partly a result of negative developments in the global economy. But in the future, as electric cars and solar power advance, oil prices might fall for economically positive reasons. Let's hope that someday new technologies will keep oil prices low forever.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

 

Noah Smith /Bloomberg View/ Jan14, 2016

-nsmith150@bloomberg.net


ISSUES.... 18 / 01 / 2016 - Send Us Your Issues

ISSUES.... Inside, confidential and off the record
Is an independent journalist effort from Petroleumworld, on Inside, Confidential and Off The Record Information, its views are not necessarily those of Petroleumworld

Follow us in : twitter / Facebook


Send this story to a friend

Copyright© 1999-2016 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld welcomes your feedback and comments,
share your thoughts on this article, your feed. back is important to us!

We invite all our readers to share with us
their views and comments about this article.

 

Write to editor@petroleumworld.com

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8 +/ 800x600 pixels






25-26 January,
Tehran - Iran

 


 

TOP

Editor & Publisher:Paul Ohep F./Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com


CopyRight © 1999-2016, Paul Ohep F.- All Rights Reserved. Legal Information


PW in Top 100 Energy Sites


Technorati Profile


CopyRight © 1999-2016, Paul Ohep F. - All Rights Reserved.
This material may not be published, broadcast, posted online, rewritten or redistributed by any type of means, except with permission of the author/s

The information in this web site is proprietary and is protected under United States and International Copyright and Trademark laws. No part of this web site may be reproduced or transmitted in any form by any means whatsoever, except with permission of the author/s..

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond
'fair use', you must obtain permission from the copyright owner.
Any use of this site or its material, in any form, without the express prior written consent of the author, is prohibited by law and is subject to legal action. Legal Information

Top 100+

Technorati Profile
Fair use notice of copyrighted material:

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from Petroleumworld or
the copyright owner of the material.