Monday, 1 December 2014

Oil is falling

A few short weeks ago a barrel of oil would set you back over $100, but now it's down below $70. The Americans are bringing their shale oil to market at exactly the same time as the economies of the EU and China have stopped growing; increased supply, falling demand - the result is predictable.

When you consider that oil is a component in just about everything we consume that has got to be a good thing. Oil use in the UK divides about equally into thirds: transport, heating and industry. Homes, schools, offices are heated; food is transported, industry provides jobs - the benevolent effect of falling oil should permeate just about everywhere.
Apart from at the petrol pumps; that's mainly tax. If the oil price fell to £0 you would still be paying 80p a litre at the pump.

Normally Saudi Arabia would curtail the supply and push the price back up. But this time it's different - they are worried about this "shale oil" idea and want to bankrupt the investors by letting the price fall below the economic cost of shale oil production, thus ensuring the investors get no return on their expensive outlay.

This will piss off the Americans, and also the other oil producers: Russia, Nigeria, Venezuela, etc - they are all going to be on short rations for a while. We might see the odd bankruptcy and maybe even a coup d'etat.

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