The Trouble With the Falling Oil Price

jjlandlord

CLAPTON wrote: »

I can't see why permanently low energy prices aren't good news for the vast majority.

Of course, everyone wants cheap energy and that would be good news.
This is not the issue.

The issue is cheap oil.

I know that no government would do it because it would be political suicide, but IMHO what would be good is a commitment that taxes will be adjusted year on year in order to ensure that the price of oil increases no less than a set amount above inflation for the next 30 years.
This could go with another commitment to re-invest the tax income to help the economy adapt.

That would give visibility over the long term and help the economy make investment decisions now.

CLAPTON

jjlandlord wrote: »

Of course, everyone wants cheap energy and that would be good news.
This is not the issue.

The issue is cheap oil.

I know that no government would do it because it would be political suicide, but IMHO what would be good is a commitment that taxes will be adjusted year on year in order to ensure that the price of oil increases no less than a set amount above inflation for the next 30 years.
This could go with another commitment to re-invest the tax income to help the economy adapt.

That would give visibility over the long term and help the economy make investment decisions now.

it was the de facto policy of the last labour government : increases in fuel taxes each year.
I see no real benefit of this policy.

ging84

I'm not sure how much of this holds true

if these few wealthy people / families / governments etc who have been intent on consolidating their wealth from oil, and have been doing so for a very long time, then they will have built up an awful lot of it, so even if they are only get back 1-2% returns a year, 1-2% of a fund based on 40 years worth of oil revenues is going to be significantly larger than the annual oil revenues themselves, so if this is really what has been happening, then the oil revenues themselves are by now far less significant than the returns on the existing funds.

Joe_Bloggs

If the price for a scarce commodity increases ,year on year it may enable economic alternatives involving new methods.

If supply exceeds demand for a commodity then the price falls.

The fall in price may undermine the entire financial viability of suppliers who require a higher price for a continued profitable existence. These suppliers may be existing upon borrowed money and time. The suppliers may have to enters a state of mothballing /hibernation/administration to exist beyond the perhaps temporary fall in price.

If you do nothing and are seen to do nothing but at the same time drive drive your competitors to near financial ruin then it is a successful sneaky stealthy strategy.

I suspect that the shale oil companies have the strategy to die and then resurrect themselves like the Phoenix when the oil price justifies it.

J_B.
Those with vastly more capital can make capitalism work better in their favor than those with less capital.

vivatifosi

purch wrote: »

Fortunately for President Pootin, the rouble is falling even faster so in the very short term his finances don't look too bad...........of course it can't last too long.

One of the news channels was running a piece from Russia yesterday. Russians complaining about Putin propping up and getting involved in the Ukraine when there's poverty at home. It will be interesting to see how his expansionist aims will hold up under a reduction in a main revenue stream.

Masomnia wrote: »

I can't see how it will get that low. It must get to a point where the BPs, Shells and Totals of this world start operating at a loss and cut production.

Hamish will probably know more than me, but the people I know in oil exploration say that looking for new discoveries gets scaled back when the price per barrel falls as many newer finds are only viable at higher prices. I don't know about shale oil but that was always the case with deep sea offshore. The Middle East however has significantly lower production costs.

CLAPTON wrote: »

it was the de facto policy of the last labour government : increases in fuel taxes each year.
I see no real benefit of this policy.

Was that scrapped in the Autumn Statement? So much talk about stamp duty, I think the message was lost at some point.

jjlandlord

CLAPTON wrote: »

I see no real benefit of this policy.

As said, apart from providing certainty to the economy and an effective way to move away from oil, none.

CLAPTON

jjlandlord wrote: »

As said, apart from providing certainty to the economy and an effective way to move away from oil, none.

It provide some level of certainty about the tax but not about the price, which I guess is useful to the government but not much use to business or ordinary people.


If the aim is to reduce carbon output then increasing the tax on carbon is likely to reduce it's usage here is the UK.
However given China and other big users aren't even aiming to stop their growth in carbon output until 2030, the UK is simply sacrificing its businesses and making itself uncompetitive for no overall reduction in global CO2 production.

jjlandlord

CLAPTON wrote: »

It provide some level of certainty about the tax but not about the price, which I guess is useful to the government but not much use to business or ordinary people.

No.
You haven't read my post.

CLAPTON wrote: »

However given China and other big users aren't even aiming to stop their growth in carbon output until 2030, the UK is simply sacrificing its businesses and making itself uncompetitive for no overall reduction in global CO2 production.

This is a very short-sighted view.
Moreover, I'm not sure that UK businesses are as reliant on oil price as you are suggesting.

Being at the forefront of such a change does not make you uncompetitive, it makes you a leader in the new technologies that will be required by everyone else sooner than later.

It's better to invest in tomorrow than trying to keep yesterday alive for as long as possible.
Being, and staying, competitive requires looking ahead and long term planning.

China is making big efforts in that domain, though considering its situation its CO2 production is still increasing.

CLAPTON

jjlandlord wrote: »

No.
You haven't read my post.



This is a very short-sighted view.
Moreover, I'm not sure that UK businesses are as reliant on oil price as you are suggesting.

Being at the forefront of such a change does not make you uncompetitive, it makes you a leader in the new technologies that will be required by everyone else sooner than later.

It's better to invest in tomorrow than trying to keep yesterday alive for as long as possible.
Being, and staying, competitive requires looking ahead and long term planning.

China is making big efforts in that domain, though considering its situation its CO2 production is still increasing.

sounds like wish fulfilment rather than business or economics.


carbon taxes applied only in the UK do make many UK manufactured products uncompetitive whether it fits the PC green agenda or not.

pop_gun

Low oil prices are intended as a direct attack on the Russian economy. It's working as President Putin has come out and said the Russian economy will be in recession in 2015.
The problem with low oil prices is it doesn't reflect the cost of production. The price is artificially low and can't stay there. Funnily enough President Putin has also made this observation.

Mark Carney has come out and warned of a possible rate rises. The same warning he's been giving every few months since he took over as the governor of the Bank of England. He won't raise rate and neither will low oil prices force his hand.