Nipate
Forum => Kenya Discussion => Topic started by: Georgesoros on November 28, 2014, 09:29:18 PM
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With the 10% drop in oil prices. Cant mine at <$50/barrel
Russia is being crushed real bad.
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Actually it only the US that will be crushed by the oil prices. This is just the whole strategy of Saudis and other oil producing countries.If you didn't know the US economic recovery has been mostly due to SHALE OIL production...that has added anything upto 300B USD dollars to the economy and has made US self-sufficient in Oil production and consumption, and helped it improve it's forex reserves. US was in fact starting to export oil.
Shale production is not sustainable <80 dollars. The free flowing oil that Russia,Saudis and Venezualian will still be profitable...albeit at lower profit. It cost very little to mine saudi or russia or nigeria oil...
That is why OPEC have sat down few days ago and refused to intervene.
US [and anyone thinking shale] will have to halt production and start buying from middle east and african once again.This will devastate the big economies and state govs of texas,california, north dakota and oklahoma...in the short term.
Obviously the beneficiary will be oil consumers everywhere in the world.
Turkana oil..we will have to know the numbers it would take to make it profitable....
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Pundit
Russia may go bankrupt if this continues for a while - 1-2yrs.
China will swim in wealth.
Of course Nigeria has to adjust their budget - Oil <30%.
If Turkana is too expensive they will stop till prices go UP.
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USA has cut deals with its middle east partners to supply more,push down prices and punish putin and maduro of Venezuela,oil and currency traders have made alot...i think Kenya need to relook oil investments as prices push down to $50 VS $45 upstream costs,
Without Prejudice.
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Mansfield,
In the short term - I think, they will remain low. In the long term prices will edge up. Time to buy a gas guzzler?
The Saudis will make people buy bigger cars so that they can create a bigegr customer base, THey will then turn around and charge more after people have bought bigger SUVs. Ingenious right?
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Oil production and consumption, and helped it improve it's forex reserves
In the way most countries (and their wananchi) view such things, forex reserves have little significance to the USA, keeping in mind that most folks want to hold their foreign reserves in US dollars and use that currency for the big trades. US foreign reserves since 1960 have barely tripled and the USA probably ranks something like No. 20 worldwide in such things.
That is why China has something like $4 trillion worth of foreign reserves---majority in dollars---whereas the USA has only $150 billion (less than Singapore, Mexico, Algeria, and the like).
That's how it is when your currency is king and accepted everywhere.
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You're right but remember the more US import oil from Saudis and others; the more they've to ship out dollars to those countries; that is forex; even if USD is being used;
For me the target of oil prices drop...is not Russia or Venezuela or Iran..it obvious US's shale oil.
In the way most countries (and their wananchi) view such things, forex reserves have little significance to the USA, keeping in mind that most folks want to hold their foreign reserves in US dollars and use that currency for the big trades. US foreign reserves since 1960 have barely tripled and the USA probably ranks something like No. 20 worldwide in such things.
That is why China has something like $4 trillion worth of foreign reserves---majority in dollars---whereas the USA has only $150 billion (less than Singapore, Mexico, Algeria, and the like).
That's how it is when your currency is king and accepted everywhere.
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How when US is one of world biggest oil producer now...oil industry in US has been responsible for 1% growth rate[just check GDP contribution of Oil now and 5yrs ago]...in an economy that has been grown at 2%..that is 50%. All growth happening in US is mainly happening in states with shale production going on..texas and the likes. Russia and other cheap oil producers profit will decline..but they are not going out of business like Oil industry..and of course the financiers of them including banks and equities.
USA has cut deals with its middle east partners to supply more,push down prices and punish putin and maduro of Venezuela,oil and currency traders have made alot...i think Kenya need to relook oil investments as prices push down to $50 VS $45 upstream costs,
Without Prejudice.
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Pundit
Too early to tell whether Russia, Venezuela will stay afloat. Imagine if someone cut your income by 30%!! that is huge. Youll have to redo your budget and do away with some things. Thats what wll happen. Those that sell to Russia, Nigeria, Venezula will have to ship less or wait a few years to be paid.
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For well managed oil economies..they save for a rainy day. Norway, Russia and Saudis do that. Part of the oil money is annually kept in oil fund for days like this.
Pundit
Too early to tell whether Russia, Venezuela will stay afloat. Imagine if someone cut your income by 30%!! that is huge. Youll have to redo your budget and do away with some things. Thats what wll happen. Those that sell to Russia, Nigeria, Venezula will have to ship less or wait a few years to be paid.
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You're right but remember the more US import oil from Saudis and others; the more they've to ship out dollars to those countries; that is forex; even if USD is being used;
Your earlier statement referred to "forex reserves". That is quite different from the above, and now I'm lost on the point you are trying to make. Never mind. I think we can agree that importing less oil is generally good.
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In any case USD is not the only global currency now..China and Russia already trade in their own currencies..there is a mix of currencies...in any case it either US is sending the dollars to Saudi...or Saudis are increasing their 600B debt to the US..
The point is very simple..the target is SHALE OIL PROD...which has been good for US economy...probably the only booming sector in the US economy..responsible for 50% of growth in few yrs.
US is now biggest oil producer thanks to shale...Russia is third after Saudis..tell me why fall in prices...will not affect the bigggest oil producer.
Your earlier statement referred to "forex reserves". That is quite different from the above, and now I'm lost on the point you are trying to make. Never mind. I think we can agree that importing less oil is generally good.
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Pundit,
Another read....
Give Saudi Arabia credit: Whoever sets oil-production policy for the desert kingdom has guts. Unfortunately, the sheiks have made what’s likely to become a sucker’s bet.
You know this part already, but the 12-nation Organization of the Petroleum Exporting Countries last week declined to cut production, sending Brent crude oil futures tumbling to their cheapest point since 2009. The Saudis appear to be spoiling for a fight, trying to find out exactly how cheap oil must be to force surging U.S. shale-oil production to seize up like an unlubricated engine.
Energy stocks are falling; were are the buyers?(4:26)
Energy stocks are on sale following a five-month plunge in crude oil, but so far few investors are tempted to bargain-hunt. Matt Wirz joins MoneyBeat. Photo: Getty.
“Naimi declares price war on U.S. shale oil,” a Reuters headline shouted, referring to Saudi Arabia Oil Minister Ali al-Naimi.
But there are at least three big problems with this strategy. One, North American crude isn’t as expensive to produce as it used to be. Two, there’s more than you think in the pipeline to make it even cheaper. And third, OPEC nations, including Saudi Arabia, have squandered their edge in cheap oil supplies on welfare states rulers can’t easily cut back.
In 2012, when U.S. shale burst into public consciousness, common wisdom was that it would cost at least $70 to $75 a barrel to produce. As recently as last week, saying U.S. producers could tolerate $60 oil seemed aggressive.
But data from the state of North Dakota says the average cost per barrel in America’s top oil-producing state is only $42 — to make a 10% return for rig owners. In McKenzie County, which boasts 72 of the state’s 188 oil rigs, the average production cost is just $30, the state says. Another 27 rigs are around $29.
That’s part of why oil companies aren’t cutting capital spending much — and they say they can keep production rising without spending more, by getting more out of wells they have already drilled.
A key example is mega-independent Devon Energy DVN, -0.15% , which produces about 200,000 of the 9 million-plus barrels the U.S. drills each day.
Devon wouldn’t give an interview, but said last month that it expects production to rise 20%-25% next year with little growth in capital spending. It has room to work because its pretax cash profit margins have widened by 37% in the first nine months of this year, to almost $30 per barrel of oil equivalent. More than half its 2015 production is protected by hedges if prices stay below $91 a barrel, the company says.
This trend toward efficiency will only get more pronounced, Lux Research analyst Daniel Choi suggests. Technology startups in energy exploration have raised $7 billion in the past decade, generating now-tiny companies that will use advances in seismic data collection and steam-assisted gravity drainage to lower costs even further. Companies such as Liquid Robotics and Laricina Energy are likely to get acquired before going public, but work like theirs will spread, Choi predicts.
Yes, it costs Saudi Arabia only about $2 a barrel to get crude CLF5, -2.22% out of the ground. But analysts insist the Saudis’ real pain point is more than $100 a barrel — more than $30 higher than its price now — because of what they do with the money once they have it.
In 2010, for example, the Saudis spent $130 billion to combat the Arab Spring, the Persian Gulf Fund reports. Some of that money went for better education and health care, and a little for infrastructure. Then there was a 15% raise for government employees, higher unemployment benefits, a government-subsidized minimum wage hike and 500,000 new homes in a nation of 28 million people. It cost 30% of Saudi gross domestic product.
Exxon Mobil XOM, +0.66% and Devon have no such burdens. Naimi’s strategy to squeeze North Dakota and Texas is a bet that in the long run, low prices will force a cut in production and a return to Saudi leverage. But it will be much easier to further trim North American production costs than to convince whole nations to eat less.
All this is early, and a snapback in demand could make everything markets think about oil moot. And just because technology changes a market doesn’t mean emerging players are great stock bets — for every Expedia EXPE, +1.13% there’s a Travelocity. The drop in oil shares now makes sense; these stocks should be on sale while things play out.
But OPEC still looks like a late-1990s company caught in Harvard Business School professor Clay Christensen’s “Innovator’s Dilemma” — so married to once-innovative business models, it couldn’t adjust when technology re-engineered their industries. Think of the Saudi welfare state as oil’s brick-and-mortar stores: integral to an old business model, unsustainable in the new.
OPEC’s Naimi ought to read the “Innovator’s Dilemma.” Barnes & Noble BKS, +1.31% has a comfy chair waiting.
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We will wait and see. Saudis control this game. They did it late 70s and 80s...crushing the world economy..and they are doing it now.