Econintersect: We offer a daily review of some of the important and/or interesting things we read each day. Our "What We Read Today" column has some material available to the general public at no charge and some more detailed discussion 'behind the wall' as premium content. We do this to offer our readers a chance to get a little extra in return for supporting our efforts. Following the Read more >> jump is the entire "What We Read Today" column from last week Thursday. What you see is the public view content followed by what was 'behind the wall'.
Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
- Inside OPEC room, Naimi declares price war on U.S. shale oil (Alex Lawler, Amena Bakr and Dimitry Zhdannikov, Reuters) IT'S WAR!!!! The U.S. has the financial resources to win the war but will a dysfunctional government chose to fight? This is an opportunity for Obama, and opportunity for a new Republican majority Congress but neither may have the resolve to pursue victory - particularly if it would appear to involve any compromise. More on oil 'behind the wall'.
- Energy shares plummet in quiet session, retailers up (Ryan Vlastelica, Reuters) U.S. energy shares saw heavy pressure on Friday as crude oil tumbled to a multi-year low. The broader indexes were up, led by retail stocks, which are expected to benefit if consumers use energy savings for increased seasonal spending for Christmas. Details for the weekly wrap-up are available from Investing.com at GEI Investing.
- CNN Poll: Majority of Americans say things are going well (Alexandra Jaffe, CNN) Hat tip to Alun Hill. For the first time in almost 8 years more than half of Americans think things are going well in the U.S. A new CNN/ORC International poll found 52% of Americans said things are going well but less than than that (1/3) say the economy is improving while a higher number (41%) say the economy has stabilized. Men are more positive than are women and the East and Midwest are more positive than the South and West.
- Articles about events, conflicts and disease around the world
In Ferguson, Officer Defused Eruptions as Crowds Grew Tense (The New York Times)
Despite Aid Push, Ebola Is Raging in Sierra Leone (The New York Times)
French Lawmakers Debate Recognizing a Palestinian State (The New York Times)
In Afghanistan, War Now Knows No Season (The New York Times)
As Mexican Border Town Tries to Move On, Some Are Stuck in Limbo (The New York Times)
There are 12 articles discussed today 'behind the wall'. Much of the discussion is about the near-term and long-term prospects for crude oil.
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- What Big Economies Got Right, or Wrong, After Crisis (Jon Hilsenrath, The Wall Street Journal) Austerity or stimulus, debt to GDP has risen. More stimulus (monetary and fiscal) has done better on growth.
- Special Report: Why Italy's stay-home shoppers terrify the euro zone (Gavin Jones, Reuters) Italy is stuck in a rut of diminishing expectations, otherwise known as a deflationary spiral. No one comes out for sales anymore because stockpiling doesn't make any sense if prices will be lower in 1, 2 or 3 months in the future. Three-for-the-price-of-two has no attraction if the expectation is that you can get 4 for that price later. Econintersect will have more on the Italian economy in coming days.
- Crude economics drives down price of a barrel of oil (Barry O'Halloran, The Irish Times) More discussion of the oil markets as driven by a price war.
- The Geopolitical Impact of Cheap Oil (Martin Feldstein, Project Syndicate)
Today's oil price is also linked to anticipated future interest rates. More specifically, oil producers have an investment choice: They can increase production now, selling the additional oil at today's price and investing the proceeds at the existing long-term interest rate, or they can leave the oil in the ground as an investment.
But is this an investment? Isn't it really savings? There is a fuzzy line that clouds the distinction between savings and investment - see Saving vs. Investing (Financial Web). By the definition at Financial Web the difference is determined by relative risk. Is there risk to leaving oil in the ground? Could it eventually be replaced as an primary energy source? Could crude oil become worthless?
But in the near-term there will be winners and losers. Feldstein summarizes:
The big losers from falling oil prices include several countries that are not friends of the US and its allies, such as Venezuela, Iran, and Russia. These countries are heavily dependent on their oil revenue to support their governments' spending - especially massive transfer programs. Even at $75 or $80 a barrel, these governments will have a difficult time financing the populist programs that they need to maintain public support.
Although Saudi Arabia and several of the Gulf states are also major oil exporters, they differ from other producers in two important ways. First, their cost of extracting oil is extremely low, which means that they will be able to produce profitably at the current price - or even at a much lower price. Second, their enormous financial reserves allow them to finance their domestic and international activities for an extended period of time, as they seek to transform their economies to reduce their dependence on oil revenue.
- Global Economic Recovery is here for sure (Jeyaseelan M A J, LinkedIn) The author sees declining commodity prices as the process which will lock in a lasting global recovery. Econintersect: Of course, in that recovery there will be winners and losers. See preceding article about some of the losers.
- FACTBOX-Breakeven oil prices for U.S. shale: analyst estimates (Reuters) This is a collection of analyst estimates for U.S. shale oil production costs. Some of these are far lower ($20s, $30s and $40s) than commonly quoted in "consensus" summaries. See next article for one of the few that mentions $40 as a profit point for lowest cost U.S. shale producers. Many others have put the lowest feasible production price point in the $50s for a few shale operations. (Prices are for barrels of crude at the well head.)
- Profitability of Oil Sources at Various Prices (Financial Times) This is repeated from yesterday's WWRT. See preceding article to see some analysts with U.S. shale production costs estimates below the $40 low point mentioned here.
- Non-Fuel Uses of Coals and Synthesis of Chemicals and Materials (Chunshan Song and Harald H. Schobert, Pennsylvania State University) This 1992 paper presents data showing that in the U.S. about 14% of crude petroleum was used for non-fuel purposes. The same paper says that total U.S. petroleum consumption in 1992 was 136.3 x 1015 btu. The conversion 1 barrel = 5.316 x 106 btu was obtained from Conversion Factors (U.S. Energy Information Administration). By 2013 data indicates that as much as 17% of petroleum may be used for non-fuel applications - see What are the products and uses of petroleum? (U.S. Energy Information Administration). See also an estimate that 1/6 of petroleum is used for things other than fuel: There’s more in a barrel of oil than just gasoline (ExxonMobil Perspectives). Econintersect: The future of crude oil will not end when and if less is burned for fuel. It appears that "chemical" uses of petroleum have been growing at least as fast (and maybe faster) than crude oil production (and therefore faster than energy uses of petroleum). The distribution of fractions of materials from petroleum can be widely varied within the refining process. If the market for fuels declined and for chemical feedstocks increased the refineries would be built and operated differently.
- Do You Know What Else Crude Oil Makes? (HubPages, Morningstar) Straightforward discussion. See also What are the uses of crude oil and what can you make from it? (Answers, Yahoo.com) and How Oil Refining Works ( Craig Freudenrich, Ph.D., How Stuff Works?)
- Other Economics and Business Items of Note and Miscellanea
The economics of Thanksgiving from 1621 to 2014 (PBS Newshour)
Interest rate rise will come next summer, economists predict (The Guardian)
Best books of 2014: Economics (Financial Times) Martin Wolf picks his best books.
Celebration of the Hanken publications Economics and Society, and Hankentidningen (Hanken.fi) Interesting academic history from Finland.
Does job insecurity deteriorate health? (Eve Carol and Mathilde Godard, Health Economics) Free summary for article with fee.