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'.
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
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.
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.
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