04-01-2016, 11:44 PM
(01-01-2016, 10:01 AM)corydorus Wrote: [ -> ]Low price can shift the demand and supply curve of substitute but if is a general economic slow down, this not going to help much because there aren't demand. Every damn thing fall. Coal, Oil, palm oil ... they are just "substitute" of each other. How is low oil price going to help shipping if the ship can't leave the port ? Even if it can, the oversupply of ship will pressure your rates down.
And low oil price is probably here to stay for long time. why ? Because the Tap is already build. ie. Shale oil. Evey time the price go up, shale oil will flow again and this will push down the price. How this spiral be overcome will be interesting to find out.
Fall in oil price continues to hurt, not help global economy
DateJanuary 4, 2016 - 8:52PM
- Read later
[Image: 1425525330490.png]
Jonathan Shapiro
Senior Reporter
View more articles from Jonathan Shapiro
Follow Jonathan on Twitter Email Jonathan
[Image: 1451901121346.jpg]
A flare-up in Middle East tensions such as this protest at the execution of a Shiite cleric, has triggered a text-book surge in oil prices. Photo: Ebrahim Noroozi
The dramatic 30 per cent decline in the oil price, after a 50 per cent drop the year before was a major market event of 2015. Now, a flare-up in Middle East tensions has the world on edge and has triggered a text-book surge in oil prices. On Monday, the price of Brent crude oil rallied almost 5 per cent.
The conventional wisdom has been to buy oil on signs of a crisis in the Middle East amid threats of reduced supply. But is that the right move by the market? Could tensions between Iran and Saudi Arabia actually contribute to increased supply, further depressing the price of oil?
In a detailed August interview with Bloomberg, foreign policy expert Leslie Gelb surmised that it was policy driving the oil price rather than the oil price driving policy in the region, particularly in light of Iran striking an agreement with the US over its nuclear programme that will again allow it to sell oil to the world.
He made the prescient point that Saudi Arabia fears Iran's rising wealth more than it does its diminishing fortunes and was therefore, prepared to pump out as much oil as necessary to "make sure Iran's leaders can't put their hands on as many bucks as they would hope."
It is a reminder that oil is a far more complex commodity to analyse than any other. Recent developments remind us that the full impact of oil's demise on the financial and geopolitical landscape has yet to be fully felt.
Oil is the lubricant of the global economy and its cheapness was meant to be a good thing for everybody. The lower price should mean that every dollar that would have flown to the gulf and to distinct destinations such hedge funds managing the vast sovereign wealth and Manchester City footballers (the club is owned by a wealthy sheik) was diverted to the world's motorists, air passengers and the governments of poorer nations.
Dividend yet to come
As yet, the rest of the world has not received its oil dividend. That is because the negative impact of the vast scaling back in energy related capital expenditure has outweighed the positive impact of consumers paying less at the pump.
Economists at private equity giant, the Carlyle Group, pin much of the unexpected weakness in 2015 global growth on declining capital expenditure spend as a result of falling commodity prices.
The firm's analysis suggests the enormous impact of mining and energy related capital investment on the global economy and subsequent pull-back, had been under appreciated.
From 2000 to 2012 energy and mining capital had grown to account for 40 per cent of all global capex spending. In the US, energy accounted for 70 per cent of fixed investment spending from 2009 to 2014.
By Carlyle's numbers, a 30 per cent decline in energy related orders was enough to pull the US industrial sector into recession. Even a 7 per cent rise in US auto sales in the first eight months of 2015 was not enough to prevent a contraction in US industrial production.
The decline in oil prices may have played a role in rising auto sales, but it does seem like the US consumer is still cautious despite the windfall.
Jason Sedawie, of Decisive Asset Management who invests in several US retailers, points out that declining oil prices "are helping the consumer to catch up deferred home and car expenses but they have pulled back on smaller purchases".
Changing consumer habits, largely the result of technology, means the beneficiaries of cheaper oil are not as easy to identify on the sharemarket. Also some analysts believe the decline in oil prices could actually support major oil stocks such as BP and Shell by forcing management to cut back on ambitious, uneconomic extraction projects and return funds to shareholders. The major oil producers have cut spending by $200 billion in 2015 but are still estimated to spend about $US650 billion annually.
Finally, the impact of oil in measuring inflation could add to an already jumpy bond market. A small rise in the oil price, from its apparent low base, could result in sharply higher quarterly inflation prints that central banks may regard as "transitory" but markets may not.
On the first working day into 2016, it already seems that oil will again be the major theme for markets.
Read more: http://www.smh.com.au/business/fall-in-oil-price-continues-to-hurt-not-help-global-economy-20160104-glz391.html#ixzz3wI5V6M00
Follow us: @smh on Twitter | sydneymorningherald on Facebook
