Tuesday, February 23, 2016

Oil Prices to Remain Low - For 10 Years?

While low oil prices are viewed by the majority of the public as good, the low prices are not without consequences (as is always the case with ANY economic news). Capital investments in the oil industry are down, so drillers, pipe manufacturers, steel suppliers of said pipe and so forth are seeing a similar downturn. At the other end of the...pipeline...(groan), plastic prices are down. This is generally great for manufacturers, but it is not so great for the recycling industry. With the difference in price between virgin and recycled resin disappearing, the incentives to use recycled resins are disappearing and so is the demand for recycled resins.

So a recent report that oil prices could stay low for another decade is something to take seriously. The source of the prognostication, Ian Taylor if the Vitol Group, is a respected opinionator:
"Vitol trade[s] in excess of five million barrels of crude and refined products a day, sufficient for the needs of France, Germany and Spain combined, and its views on the market [are] closely monitored."
The slowing of the Chinese economy and the shale fracking boom are to blame according to Taylor.

Surprisingly, nothing was said about Saudi output, which Saudi production, which as the linked chart shows, still remains steady. Opinions are numerous and varied as to why this remains so steady (The new Paris accord shouts one site! Fracking and Iran shouts another!) I don't have the time to assembly a list, but proposed reasons could outnumber the reasons offered for the Fall of the Roman Empire. Regardless, a quick decrease in their production could rapidly elevate prices.

As with any good (?) prediction, there are plenty of weasel words to allow for saving face. "Could", "should", "might" and "possibly" are all right up there, with dozens more waiting in the wings. So will oil prices stay low for another decade? I don't know. As Yogi Berra said (or was it Neils Bohr?), "It's difficult to make predictions, especially about the future."

Feel free to add yours in the comments section below.

Previous Years

February 23, 2012 - An Edible Drink Bottle - No Thanks, I've Lost My Appetite)

February 23, 2010 - Spec Sheets


Joe Q. said...

An example of a knock-on effect of low oil prices: Here in Canada, the value of our currency is highly correlated with the price of oil, and has taken a steady beating over the last while: http://www.xe.com/currencycharts/?from=USD&to=CAD&view=2Y

This has a huge effect on casual cross-border shopping and travel. There are a lot of communities in the northern US border states that have tourism and retail operations buoyed by much larger nearby Canadian population centres. Examples include parts of northern Washington, Montana and North Dakota; south-eastern Michigan, western and northern New York, Vermont, and Maine. These parts of the US are feeling the pinch as the Canadian dollar has declined -- it's like there is a price premium on everything.

I live in the Toronto area, about two hours' drive from Buffalo, NY (home to several malls that are only really kept afloat by cross-border shopping). Friends who used to go to the US a few times a year (or sometimes a month) aren't going at all these days.

Jayfields said...

Couldn’t be written any better. Reading this post reminds me of my old room mate! He always kept talking about this. I will forward this article to him. he is working with steel suppliers Texas.. Pretty sure he will have a good read. Thanks for sharing!