Oil prices have never recovered to 1864 levels (in constant $US). Nevertheless, yearly – monthly – daily – hourly oil price fluctuations make a great deal of difference to various people and organisations.
Sure, it matters to you when you pull up to the pump, whether you pay $5 / gallon or $3.50 a gallon. But for many countries of the world, oil prices are a matter of survival.
National governments that finance their budgets on oil & gas income, for example, care deeply about oil price fluctuations. If oil prices do not stay above “fiscal breakeven levels,” the government will either have to run at a deficit (borrow money), or cut spending projects (or graft). None of these options are appealing to oil states, which are invariably corrupt from top to bottom.
Fiscal breakeven oil prices for corrupt states such as Venezuela, Iran, Russia, Saudi Arabia, and Bahrain, for example, are above $100 bbl. This puts a significant damper on economic expectations for these scumbag rulers for as long as oil prices stay well below fiscal breakeven. How long will these miscreant states be expected to suffer such indignities?
Oil now seems to be caught in a narrow range. International benchmark Brent crude fell back below $48 yesterday. Hedge funds and other investors are broadly betting the worst of the oversupply is priced in and that oil prices will not return to the lows of $42 seen in August.
But $50 seems to be a tough ceiling to crack and most analysts are predicting prices will be rooted near this level well into next year. __ http://www.theweek.co.uk/oil-price/60838/oil-price-predictions-choppy-and-sideways
… the inherent weakness still persists in the oil market and unless we see green shoots of recovery in the European economies as well as China crude prices will be under pressure. The downside for WTI crude (CMP: $45/bbl) prices can be seen till the extent of $38 while Brent oil (CMP: $48/bbl) downside can be seen to the extent of $40 per barrel.
More on how sustained low oil prices may impact Russia in particular:
Moscow is being backed into a corner. As we wrote this summer, Russia is particularly vulnerable to new competition from Iran, as both countries will be attempting to sell the same variety of heavy, sulfurous crude in Europe.
And for Putin, that has to be the most terrifying aspect of all of this: that it looks like things are going to get worse before they get better. It’s hard to imagine demand spiking high enough to send prices back above $100 per barrel, especially with China’s weakened economy. And on the supply side of things, OPEC is still resisting calls to cut production even while American shale producers are finding ways to keep output up on slimmer margins. This is Russia’s new reality, and it’s not a pretty sight.
Russia is in the middle of a very expensive military renovation and rebuild. Its troops are involved in armed conflicts in Georgia, Ukraine, Syria, Moldova, and elsewhere in Eastern Europe and Asia. Russia’s infrastructure is rapidly degrading — from health care to transportation to oil pipelines to heavy industry. This is not a good time for Russia to be backed into a fiscal corner.
Other corrupt oil states — such as Iran, Venezuela, Saudi Arabia, Iraq, etc. — have similar problems of corruption and over-leveraging in multiple ways.
If Europe and the Anglosphere had wiser leadership, it would recognise that this is a good time to push such corrupt sponsors of terrorism and instability to mend their ways. But instead, crooked and stupid leaders such as Obama, Hollande, and the other usual suspects appear to be enabling the criminal oil states, and facilitating their mob-like misbehaviour and bloodletting.
Putin is facing a perfect storm of bad financial news. His economy continues to suffer under the weight of Western penalties imposed for his actions in Ukraine. The price of oil, a lifeblood of Moscow’s economic engine and already at historic lows, won’t go back up until the market makes its way through millions of barrels of oversupply. All of this has sent the value of Russia’s currency, the ruble, down 44 percent against the U.S. dollar in the last year, leading to a spike in inflation.
… “The biggest problem that Russia faces is stagnation,” Miller said. “They’re going to be in recession this year; there’s a good chance they’re going to be [in recession] next year. And the three- to five-year timeline isn’t looking promising.”
Kremlin propagandists are making brave noises, saying “Russia is past the worst now — no, really it is!” But wise observers understand that Russia’s problems have only just begun.
Eastern European nations are beginning to arm up against the bear, with Poland leading the way. Poland, Belarus, and Ukraine have more in common with each other than with Putin’s Russia. Look for a number of ad hoc anti-Russian alliances, covertly assisted by China.
Remember: The reason that Putin invaded Crimea and east Ukraine in the first place, is that Russia’s infrastructure, economy, and quality of life were already in decline — leading to an acute drop in Putin’s popularity, pre-war.
Now that Putin has drawn western sanctions — and oil prices have taken a sustained downturn — Russia is running through its foreign reserves rapidly, and being forced into drastic cuts across a wide and critical swathe of infrastructure. Already disastrous demographic trends suddenly have grown worse.
Russia has burned bridges in the west, and its alliances in China are proving far less useful than previously anticipated. Putin’s kabuki theatre in Syria is an act of desperation. Yes, oil prices for oil dictators can be a matter of life or death.
The number of Russia’s fertile young women is nearing an abrupt drop-off on the population pyramid. This looming catastrophe is made worse by the wholesale trafficking of young Russian girls overseas by Russian mafia, and the wanton waste of even younger Russian girls in the child pornography and child prostitution schemes of Moscow and St. Petersburg.
Hundreds of thousands of young, fertile, Russian girls have been trafficked abroad over recent years, making Russia’s looming demographic crisis more inevitable. Low oil prices make living conditions inside Russia even more dismal than before, giving criminal factions with Kremlin connections more human fodder for the slave mills.
Falling oil prices temporarily affect selective industries in Europe and the Anglosphere as well, but it its the corrupt oil states of Asia, Africa, Latin America, MENA, and Russia that are liable for the greatest and longest-term damage.