Financial Meltdown (The World)

[avatarless]

Hey M-
Thanks for your reply.
What's your opinion of this opinion: http://blogs.cfr.org/setser/2008/12/19/chieuropa/

[Morrolan]

Hey M-
Thanks for your reply.
What's your opinion of this opinion: http://blogs.cfr.org/setser/2008/12/19/chieuropa/

ooh... that is a great blog. some very smart people there, although i'm inclined more to the opinions of Twofish than those of bsetser.

[baloo]

So Oil is trading below US$34. That's a bit of a massive change from less than a year ago. Morrolan Rogers, what's the reason behind it ? Was the price ramp all speculation or has demand really come off that much ?

I can't see the OPEC countries being too happy about this. Their budgets must need some serious rethinking as are any new rigs that were going up expecting the $100+ price we were getting.

[avatarless]

And Russia, Iran and Venezuela are shitting bricks right now trying to raise cash. In the case of Russia, shitting gold bricks.

[baloo]

If I were holding GBP, I'd be very worried after reading this.

Reform plan raises fears of Bank secrecy

[Fat Bob]

The big issue I have at the moment is that the Government is trying to do a lot (well, government and Bank of England) by reducing interest rates, bailing out the banks, and now printing more money. But the banks are just not letting this onto the markets.

It'll be a problem for a year or so, they'll be strikes for the second winter of discontent, then the Tories will get in, tighten it all up, get the banks stock prices up, sell off the stock the Government has making lots of money for the UK and getting it all strong again.

5-6 year before the fruits of this work happens though.

Great for sending money back though!

[Bob the Builder]

You almost sound like our new chief exec FB

[Fat Bob]

I tend to be optimistic most times. I just hope my 250 Bradford & Bingley shares are worth something in a few years time! HA!

[Morrolan]

So Oil is trading below US$34. That's a bit of a massive change from less than a year ago. Morrolan Rogers, what's the reason behind it ? Was the price ramp all speculation or has demand really come off that much ?

I can't see the OPEC countries being too happy about this. Their budgets must need some serious rethinking as are any new rigs that were going up expecting the $100+ price we were getting.

let's see what i wrote months ago:

the price hike was caused by a number of factors:

1. supply issues
if you suddenly move a lot of diesel fuel to China on top of their increased normal demand and paired with the demand as a result of their and India's economic growth then price pressures will arise. the factors influencing this demand were the Olympics and the earthquake in Shezuan. there was no shortage of crude, there was a shortage of the right product.

2. refinery output imbalance and capacity
if the demand for diesel suddenly outstrips demand for petrol and refineries are geared for petrol (as they usually are), price mechanisms will cause increases due to perceived demand. ironically, it was so hard for some refineries to get buyers for their (non-diesel) product that they actually went off-line and brought maintenance forward. this caused further disruption to the supply chain.

3. USD decline versus every other global currency except the Zimbabwe Peanut.
oil revenues are in USD, yet costs generally are not, hence when the USD goes down against everything the costs of product denominated in USD will increase, especially when demand increases as a result of this cheap USD. this was true for a lot of commodities and not just oil.

4. oil subsidies: demand was not influenced by increasing USD price in some very large consumer countries (China, India, Indonesia to name a few) due to their policies of fuel subsidies.

5. price inelastic behaviour of oil
price increases do not generally influence the demand for oil in a significant way. the product is highly inelastic, this means that demand will only slowly be influenced by a price increase, creating further trigger for a continued price increase.

6. Supply in general
OPEC has a hard time increasing supply on short notice (no matter what they say: the only stretch is in Saudi Arabia's production and that is a drop in the ocean), non-OPEC countries are hardly able to increase at all, Russia is playing the field, so to speak, buy influencing production and supply. a lot of new finds still have not come onstream.

7. hoarding
the price increases caused a lot of supply buying for strategic reasons from (amongst others) the US government, further disrupting supply availability for normal demand.

ad 1. the supply issues have disappeared: as i mentioned early September, the oil price started to drop as soon as the Olympics were over, and economic slowdown has resulted in lower demand for diesel and other fuels (shipping!) reducing product demand pressures.

ad 2. the removal of the diesel demand removed the product imbalance in the refineries

ad. 3 USD has been appreciating

ad. 4 oil subsidies have been removed or strongly reduced over the past 12 months slowly affecting demand in these countries

ad. 5 the increase in price has finally caught up with demand causing the price pressures to become less.

ad. 6 supply has not increased, in fact has been reduced recently without noticeable effect.

ad. 7 strategic storages filled, the spare demand from this corner disappeared.

funny how even a very severe winter in the northern hemisphere has been unable to shore up the oil price.

of course in the long run, this price level will influence supply as new projects in oil and alternative fuels, that have a high break-even are now being mothballed.

laslty, what speculation there was has now moved in the other direction.

[Burbage]

What effect does disinformation have I wonder. Oil is a strategic resource as well as an economic one. If the majority of oil still left in the ground is in the Middle East, you can be sure that there'll be a lot of talk about there being plenty of oil everywhere else, whether there is or not.

[Joseph27]

Are we in a fundamentally broken system in need of major restructuring or can the constant tweaking and a fresh injection of a trillion more dollars save it? A lot of people are looking to Obama's swearing in to help turn the tide but is it too late?

[Burbage]

The bailout works out at about 3000usd per capita. How far will that go?

[Joseph27]

$3000 per capita certainly puts things into perspective doesnt it. I havent been able to find any optimisitic assessments as to what comes next? How does the US maintain a $500billion military budget which doesnt include the costs of 2 ongoing wars - plus maintain a global military presence - a multi trillion dollar deficit, collapsed housing market, surging unemployment and expect things to get better? What can Obama possibly do to rectify this and restore confidence?

Its a headache reading the material that is out there

[Dinosaur]

The big issue I have at the moment is that the Government is trying to do a lot (well, government and Bank of England) by reducing interest rates, bailing out the banks, and now printing more money. But the banks are just not letting this onto the markets.

It'll be a problem for a year or so, they'll be strikes for the second winter of discontent, then the Tories will get in, tighten it all up, get the banks stock prices up, sell off the stock the Government has making lots of money for the UK and getting it all strong again.

5-6 year before the fruits of this work happens though.

Great for sending money back though!

But surely the problem with the above is that this daft Labour government + Bank of England can still do a lot more damage to the GBP before the Tories get back in. I hope you're right about 5 to 6 years but I have some doubts.

[Fat Bob]

You're right, I'm just being optimistic. It may be even longer, but Maggie did some good things in the early 80s and it didn't take her 10 years, so fingers crossed.

[Dinosaur]

You're right, I'm just being optimistic. It may be even longer, but Maggie did some good things in the early 80s and it didn't take her 10 years, so fingers crossed.

Yeh fingers crossed. Whilst we ditched all our Sterling last year and have no intention of going back to the UK, me and Mr PK have still got the UK State Pensions to look forward to in the future and it'd be nice if they were worth something.

[baloo]

I read with interest the lead story in the Today Newspaper this morning where the government is talking about having to dip into it's reserves. Fairly grim article about the state of Singapore's economy which is all the more worrying seeing it was written up in the gerneal media.

[cromasaig]

You're right, I'm just being optimistic. It may be even longer, but Maggie did some good things in the early 80s and it didn't take her 10 years, so fingers crossed.

Guess I'm the only one who saw the thread entitled 'Ding dong the wicked witch is dead' and immediately thought it must be referring (albeit rather tastelessly) to the Iron Lady...

[Spike]

You're right, I'm just being optimistic. It may be even longer, but Maggie did some good things in the early 80s and it didn't take her 10 years, so fingers crossed.

Yeh fingers crossed. Whilst we ditched all our Sterling last year and have no intention of going back to the UK, me and Mr PK have still got the UK State Pensions to look forward to in the future and it'd be nice if they were worth something.

I made the decision not to return to the UK some years ago, but at least half of my savings are in GBP

[Fat Bob]

I've got money in the UK too....you've just got to ride it out and hope it returns to 2.5 or better against the SGD or whatever country you retire to.

Must say, there's some ruckus in the Eurozone. Ireland are having trouble, same with Italy and Greece and I think Spain. Will the Franco-German alliance heading it up make sure ther smaller, less devloped courtries can pull through? Will be an interesting ride indeed!

[Dinosaur]

or whatever country you retire to.

... and there's the rub. No matter what bloody currency we pick, the Thai Baht remains infuriatingly strong

[Burbage]

How about the Zimbabwe dollar? You can get ten trillion for 30 bucks.*

That was a couple of days ago. You could probably get a hundred trillion today.

[Fat Bob]

Ah, but what can ou get for 30Baht!

UK bank industry is just bending itself over, and the UK government is just giving it to them. However, the UK Government has always been homophobic, and whatever they are doing is just making the banking industry bleed even more.

Maybe not time to be optimistic!

[Dinosaur]

Ah, but what can ou get for 30Baht!

Ummmm....

A big bag of vegetables
or
1 chicken fillet
or
A bottle of beer in the supermarket
or
A big can of baked beans............

[BoD]

That sounds like a very balanced diet.