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Perfectionist

Oil Prices Fall Despite Hurricane Rita ....

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that's actually NOT very good news.

it means that the penny is finally dropping.

...after all the a)despair about damage

b)euphoria about rebuilding

...we have gone back to realising that the Nationally high gas price in the states is going to really put the brakes on the US consumer.

...and if the consumer loses momentum,demand for pretty much all of the plastic tat will fall,and so will oil demand to make tat.

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I'm seeing more and more evidence that consumer fuel demand (petrol etc) is basically falling off a cliff. If correct then that very strongly suggests that consumers are pulling in their spending and a recession is on the way.

And in Australia we're starting to see official (government) hints that higher IR's are a possible consequence of the fuel situation.

From a technical analysis (charts etc) perspective oil looks set to fall to around $56 a barrel. No guarantees though... :)

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OK so now I'm confused.

As it stood before we had

a) Peak oil situation meaning extraction more difficult and rising oil prices

B) Over consumption leading to greater demand and higher oil prices

c) a + b = higher inflation and higher interest rates (projected)

Plus on top of this we had the Katrina situation that knocked various aspects of the oil industry and pushed prices up.

Now we still have peak oil but consumption is falling (which should be good ecologically speaking) but shouldn't therefore interest rates/inflation be more controlled accordingly? Plus we have Rita which is still (I think) affecting the oil industry but prices are going down?

Now we are having reports that oil may fall to $56pb, yet only a couple of weeks ago we were seeing statements on this site saying it would go up to $100pb and we would never see $50 again!!! :blink:

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OK so now I'm confused.

As it stood before we had

a) Peak oil situation meaning extraction more difficult and rising oil prices

B) Over consumption leading to greater demand and higher oil prices

c) a + b = higher inflation and higher interest rates (projected)

Plus on top of this we had the Katrina situation that knocked various aspects of the oil industry and pushed prices up.

Now we still have peak oil but consumption is falling (which should be good ecologically speaking) but shouldn't therefore interest rates/inflation be more controlled accordingly?  Plus we have Rita which is still (I think) affecting the oil industry but prices are going down?

Now we are having reports that oil may fall to $56pb, yet only a couple of weeks ago we were seeing statements on this site saying it would go up to $100pb and we would never see $50 again!!! :blink:

OK, I'll explain...

1. Peak oil. Not much has changed there apart from the from production in the Gulf of Mexico. The world has lost a little bit of oil supply but not a huge amount. Technically, we have seen a peak in production in July 2005 followed by a bit of a fall. This is probably not THE peak although if enough goes wrong from this point onwards then it is possible that we have seen an all time peak. Possible but not probable.

2. Inflation / Interest Rates. This is a delayed reaction feeding through the economic statistics. Yes, if oil prices crash from this point then that will in due course feed through to reverse some of the pressure on inflation etc. we are now seeing. But we still have most of the rises that have already occurred slowly feeding through. It's a bit like driving around a corner too fast and losing control. No matter what you do from that point the car is still going to keep going in the direction that it is already travelling in for a while. Your actions now will only influence what happens next, not what is already unavoidable because you drove too fast. Much the same as nothing you do at 3am after a night of heavy drinking will stop a hang over the next day even though that hang over is yet to start. You have passed the point where it could have been avoided and the oil price seems to be much the same. There are effects of the high prices already "built in" to the coming economic statistics and these will take quite some time to become fully visible.

3. Regarding the crude price falling, it's because of the imbalance between refining and crude oil production capacity. In short, although the world has lost a bit of crude oil production there have also been serious losses of refining capacity. The world can now produce more crude oil than it can refine such that there can be no actual shortage of crude no matter what demand does. Demand could double and we would still have plenty of crude whilst there is insufficient ability to refine that crude into petrol etc. So the market for refined products has become detached from the crude oil market. The financial markets seem to be sensing that this relative abundance of crude oil will be around for a while (months) since by the time the refineries are fixed, demand will likley have fallen such that although crude demand will increase as stocks of refined products are rebuilt (when the refineries are back up and running) there will be no real pressure on refineries to maximise output and hence no willingness to pay excessive prices for crude.

In short, the oil market seems to have already gone over a "tipping point" as far as demand is concerned. Whilst there are short term shortages of refined product due to hurricanes and there are very real problems in the longer term, over the medium term (months) there seems to be plenty of crude oil available and the price is reflecting this.

It all depends on whether you are looking at crude oil or refined products and on what timeframe you look at. The key point I see is that we seem to have gone over a tipping point with demand which suggests an economic slowdown.

Hope that makes a bit of sense.

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Guest wrongmove

The explanation of the short term moves over the last few days is very simple.

Rita went to cat 5, everybody got very worried about Texan production, price went up a bit.

Then Rita dropped to cat 4, then to cat 3, everybody got less worried, price went down a bit.

This has very little effect on the longterm trend.

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All of this will have little effect on petrol prices here. We have our own refineries in the UK and also on mainland Europe.

Not true. Oil is the most global of all markets. If there is a shortage of petrol in the US, prices there will rise high enough to draw petrol from Europe, which will in turn push prices up here.

And Europe has to import diesel and heating oil, mainly from Russia and the Middle East. If there is a shortage of these in the US (which there will be over the next few months) the imports we normally receive will be redirected to the US, causing higher prices here.

Another point to make - higher prices for products will ultimately mean higher prices for crude - even if logic might suggest that a lack of refining capacity will mean an excess of crude. A lot of crude is sold by national producers at "Official Selling Prices". They can see how much refiners are making by selling the products, and raise their prices accordingly. If they can't get buyers at these prices, they cut back production. This factor feeds into prices for freely traded benchmark grades like Brent or WTI.

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Another point to make - higher prices for products will ultimately mean higher prices for crude - even if logic might suggest that a lack of refining capacity will mean an excess of crude. A lot of crude is sold by national producers at "Official Selling Prices". They can see how much refiners are making by selling the products, and raise their prices accordingly. If they can't get buyers at these prices, they cut back production. This factor feeds into prices for freely traded benchmark grades like Brent or WTI.

Agreed although it will take a little while yet to all feed through.

The impact of lower US gas production on the demand for oil is particularly concerning given the seasonal timing and problems with oil in the US.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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