The price of oil

[Mervyn and Trish]

Can someone who understands it (or at least claims to) explain this conundrum to me?

I understand that an economic slowdown reduces demand for oil and therefore the price falls.

However, today they're saying the fall in the price of oil is bad for growth and that is why the stock markets are falling. Now this seems a bit chicken and egg to me. Which is cause and which is effect?

I can understand that for the oil companies falling prices in bad (to say nothing of Shrek and Mrs Krankie who were going to build an entire post-independence Scottish economy on oil income).

However, surely for everyone else falling oil prices is good because it reduces costs, thus leaving more money to invest and grow the business and sell to other people who also have more money to spare?

Certainly when prices were rising businesses were saying this is bad.

How can it also be bad when they're falling?

Discuss. Please write on both sides of the paper!

[qbman1]

Absolutely no idea - it's a complete mystery to me too. My money's on QBob to come up with the answer.

[Mervyn and Trish]

Me too......

[screwy]

The shares have took one hell of a bash..!!

[Dark Knight]

Merv

you are just looking at oil as 1 single item, there is crude oil, bunker fuel, diesel ,petrol etc etc
then there are the oil derivatives such as most plastics, pharmaceutical industry, all sorts of petrochemicals as well, so a huge range of products
polymer prices and many other commodity petrochemicals follow the barrel price of crude oil very closely, so the profits of many companies rise and fall with oil, not just oil companies, so it is the opposite of your hypothesis, low oil prices = low profit = low investment return =less income=less expenditure=less money in circulation =less spending= less investment =less purchases made etc etc complete the circle in your own time
that said ,like may measurable indices it is slightly useless as it is only worth what one company or person will pay similar to Gold etc and there will be a further reduction due to a glut of oil as Iran seeks to sell into a depressed market, to raise billions to recover from years of sanctions
a simple view would be due to low oil prices the oil companies have made thousands redundant and now the local economy of those areas will suffer due to the above , simples really

[qbman1]

That sort of makes sense, but it doesn't seem to answer Merv's question about why businesses viewed it as bad when prices were high and equally bad when they are falling.....?

[Mervyn and Trish]

That sort of makes sense, but it doesn't seem to answer Merv's question about why businesses viewed it as bad when prices were high and equally bad when they are falling.....?

Perhaps it's as simple as because businesses just like moaning?

Like the EU debate really. Gripe about EU red tape strangling business, then when there's a chance of getting out gripe again.

Where is QBob. I just know he'll have a measured view of it?

[Mervyn and Trish]

...a simple view would be due to low oil prices the oil companies have made thousands redundant and now the local economy of those areas will suffer due to the above , simples really

And yet we hear that unemployment is at a new low. So for every thousand the oil companies have laid off someone else has taken more thousands on.

[Dark Knight]

when prices are low, they don't make money and neither does any of the companies that sell derivatives, so there is less money in the economy
when prices are high the consumer doesn't buy as much and get all excited about saving money on energy and petrol/diesel, so they don't sell as much and make less money, so they can't invest to keep finding oil, to keep selling oil at a reasonable profit, also don't forget that most of the cost of fuel sold in the UK is tax, not profit
the oil business is based on selling million and millions of barrels at a couple of dollars profit per barrel and it is crucial that the price is not too high or too low, one other point to consider is that the worlds largest net importer of oil, the USA , is now investing heavily in shale gas and oil, so it is less reliant on imports, so if Shale oil and gas is much cheaper than Arab oil, then the opec countries will reduce the price to make shale oil and gas less attractive, therefore keeping the opec sales of oil moving, once they put the shale oil companies out of business oil prices will climb, you can bet you house on that
lastly it is not possible now to have a cartel like opec anymore as non opec members will sell to anyone at any price to generate revenue

[Mervyn and Trish]

....one other point to consider is that the worlds largest net importer of oil, the USA , is now investing heavily in shale gas and oil, so it is less reliant on imports,....

And when we start fracking Blackpool..........

[qbman1]

I even failed Economics O Level so I have absolutely no hope of following this !

[Dark Knight]

don't rule out much more investment in Fracking , as anything that replaces the dwindling north sea reserves has to be investigated, no matter what the treehugging Taliban say

[Mervyn and Trish]

That's another agreement. We must stop this Batty

[Manoverboard]

Oil is cheap ... the result,

I have turned up the heating to get nice n warm, we are using more oil and electricity so loadsa taxes to the exchequer ... everyone's a winner and the economy is booming.

Simples

[Mervyn and Trish]

My simplistic view too Moby, except it's gas in our case

[Quizzical Bob]

That sort of makes sense, but it doesn't seem to answer Merv's question about why businesses viewed it as bad when prices were high and equally bad when they are falling.....?

Perhaps it's as simple as because businesses just like moaning?

Like the EU debate really. Gripe about EU red tape strangling business, then when there's a chance of getting out gripe again.

Where is QBob. I just know he'll have a measured view of it?

Did somebody's day call? Someone's got to go to work.

There's no doubt that low energy prices can only be good for the economy but it's anybody's guess what the price of oil will be this time next year. Much of the drop in equities is due to the drop in economic growth in China, down to 'only' 6.8% which to my mind is far more sustainable.

Basically, those who make money from selling oil-based products want their sales prices to be high, those who buy oil and energy are breathing a sigh of relief. Don't forget that oil is based in US$ and the pound has dropped quite a lot against that.

[Ranchi]

Well, my decision to sell my Carnival shares at £28 might yet be seen to be wise ( fat chance!)

[qbman1]

Well, my decision to sell my Carnival shares at £28 might yet be seen to be wise ( fat chance!)

I'd have given you £28.50 for them !

[Mervyn and Trish]

I'll give you £15

[Quizzical Bob]

I'll give you £15

The price is plummeting! Blimey, this crash must be much worse than I thought. I'd better sell everything I've got whilst I still can

[qbman1]

Time to buy then ?

[Silver_Shiney]

don't rule out much more investment in Fracking , as anything that replaces the dwindling north sea reserves has to be investigated, no matter what the treehugging Taliban say

That's why I put some money into Velocys, but their share price is collapsing

[Mervyn and Trish]

I'll give you £15

The price is plummeting! Blimey, this crash must be much worse than I thought. I'd better sell everything I've got whilst I still can

Make that £10 then. Don't want to get caught out

[FlashyPlum]

well frankly speaking of the crash i didn't expect the Oil prices to fall so bad,but the major reason why there has been a slump in Prices of oil are the tusk between Iran and Saudi. Because of these it has created a geographical risk in the oil-rich Persian Gulf.The oil prices have rebounded a bit these week but they have already fizzled even though prices are now heading to such lows that a more sustained rebound could occur by the end of 2016.

[Quizzical Bob]

There's a price war between OPEC and the fracking industry in America. The American companies are heavily debted and there are fears that they will default causing economic problems. Eventually the oil price will settle down to a balanced value abd anything not extracted will still be there in the ground. All it needs is for the America government to provide state backing to the industry and everybody will calm down.