I’m a bit puzzled by the media reaction to the oil price war. Yes, it could be hard on U. S. shale oil producers. But it’s also clear it is resulting in immediate prize cuts in gas at the pump and, historically at least, low gas prices are associated with a booming economy not recession. Take a look at the statistics. The Great Recession was preceded by a sharp increase in gas prices.
A price war between Russia and Saudi Arabia could, at least in the short term, be the economic stimulus that a lot of people are calling for. Enjoy it will you can. My wife just paid 10-20% less for gas than we have been recently.
Media, sober analysis. Media, sober analysis. Um, could you clarify your puzzlement?
“hard on U. S. shale oil producers”
That’s the only part that concerns me. It’s a boom and bust business.
It’s also vital to US interests. The Saudis and Russians economies are going to suffer in the short term, in the long they’ll ramp up prices.
Might be a place for federal loan guarantees like for farmers. Or not, I don’t know.
It’s TDS. How can we spin this price war to pin the blame on Trump? Or hurt his reelection prospects?
The frackers for years have been drilling boreholes, casing them, running pipelines to them, and then capping them to wait until prices are higher. Easy and quick to uncap wells when the price war and put their supplies on-line. So there will be little revenue bump for either country once the price war ends.
I think the Saudi-Russia oil war is a proxy war over Syria. Saudi cost of oil production is lower than Russia’s. Russia won’t move against Saudis militarily because of presence of US troops. So it’s a case of which Killkenny cat has the bigger tail. The price war also benefits Europe.
Frackers were losing money at $60/bbl, and almost all of them are deeply in debt and insolvent. $30/bbl will shut them down, meaning zero shale oil production, and companies permanently out of business. American oil production will collapse to pre-fracking levels. Eventually there will be some recovery, but there will be a permanent change in the American oil patch. And possibly the American economy. Socialism may be our future, even as the EU, Russia, and China have abandoned it.
Russia is in a very strong position here, even though they are suffering a major hit in trade, which, note, is deliberately self-inflicted. This is real economic war.
Russia runs a trade surplus even without oil and gas. The numerous US/EU sanctions have greatly benefited Russia’s uncompetitive companies by cutting off imports. And Russia has successfully pursued an import substitution policy for its now protected industries, especially targeting electronics. The Russian economy is becoming autonomous and immune to external manipulation.
Russia has little or no foreign debt (thanks to a previous default and sanctions), runs a budget surplus (alone among major countries), and has a large reserve, much of it in metallic gold held in-country. (Germany is unable to repatriate its gold held by the US and UK, assuming it still exists.) Russia’s economy is larger than Germany’s (PPP), and its industrial sector much more diversified than either Germany’s or ours. In fact, only China has a more diversified industrial sector.
America’s (and Saudi) weaknesses are all too apparent. A large federal debt, much of it externally held, and equal to our GDP, a large and growing budget deficit, a hollowed out industrial sector, and a hollowed out military.
Russia is going for a knock-down punch.