What effect will 30% oil price fall have on Europe's GDP

euroboom13

What effect will 30% oil price fall have on Europe's GDP?

If such a large import bill is reduced? Our ratio to exports change?

Will that not speed up rate policies?

Will it be enough to raise all ships?

Thoughts please ,thanks.

(it is a massive game changer ,surely)

stevedublin

It could mean US/Japanese style QE won't happen in the Eurozone.

euroboom13

May not need QE.

Has to have a massive impact, 30% of such a Hugh commodity.

Unreal times ahead.

Europe is the place to hedge oil collapse , I think?

stevedublin

euroboom13 wrote: »

May not need QE.

Has to have a massive impact, 30% of such a Hugh commodity.

Unreal times ahead.

Europe is the place to hedge oil collapse , I think?

If no QE for Eurozone, then that would be bad for European economy ,no?

power101

For every $10 drop it leads to a .1% increase in growth in Europe. So it should lead to a .3% increase year over year if prices remain around $80 dollars next year. As Ireland is more dependent than most of europe for oil and gas it should lead to at least an extra .5% increase in growth next year if these oil prices remain low.

lucky john

I'm not as sold as other's on how beneficial cheaper oil is at the moment. Firstly, it is possible this could be a short drop. As oil is a traded commodity it could easily jump up to 100 dollars a barrel if this ridiculously mild weather changes to a more normal winter chill. People sunning themselves on deck chairs in London on November 1st is the equivalent of skiing in Blackpool in June.

It all comes down to demand. In Europe today demand is dropping. Weather aside, industrial and manufacturing has consistently been slowing because demand for products just isnt there. If you take an example of a manufacturer of plastic bottles. If fewer and fewer people are buying the bottles cheaper oil is of limited use for now. However, if demand for his products rises and his oil remains cheaper then the business will have the incentive to grow and hire. The problem will be however than once a report is issued of a growing demand in Europe the price of oil will jump immediately on the markets.

Oil isn't cheap because producers have found a way of producing it at $15 or $20 dollars a barrel (the opposite infact if you cost US fracking) its because of less consumer demand.

Ps.
Ironic to see public transport costs rising in ireland as their biggest cost reduces in price.

Value Hunter

Also bear in mind the Oil is priced in $, which has increased in strength significantly (is it 10 - 15%?) vs the euro recently, hampering the benefit to the euro area of lower oil prices

euroboom13

Value Hunter wrote: »

Also bear in mind the Oil is priced in $, which has increased in strength significantly (is it 10 - 15%?) vs the euro recently, hampering the benefit to the euro area of lower oil prices

http://www.mcoscillator.com/learning_center/weekly_chart/commercials_betting_on_big_dollar_downturn/

lucky john

euroboom13 wrote: »

http://www.mcoscillator.com/learning_center/weekly_chart/commercials_betting_on_big_dollar_downturn/

I have only a passing interest in currency movements but as we stand now I can't see much of a sudden reverse in the euro/dollar position. The opposite in fact. Now that qe is over in the states and only just beginning here in Europe, down is the only way the euro can go. on thursday The ecb might give an idea of how much bonds the intend to buy or more importantly the value of suitable bonds there is to buy.

What was obvious from the stress tests was the fact that banks are not lending in the eu, they have been hoarding. Any cheap money they recieved in the past while has been diverted to their balance sheets to shore up reserves. Now that the test are over a new phase will begin. Turning as much dodgy assets into free cash as possible. they can lend then and start to rebuild a profitable business model again. From what alot of analysts are saying there is a limited number of ABS in Europe so either they create more ( eg. Irish tracker mortgages rolled up into a security) or they buy government bonds (full qe). Either way the result will surely be a weakening of the euro.

Throw into the mix the tension in Ukraine, the ignoring of ecb rules by france and Italy and the possibility of deflation in Europe. Not much to strengthen the euro in prospect to my mind anyway.

As a mater of interest how long will oil need to be cheaper for to benefit a countries gdp?

euroboom13

http://www.reuters.com/article/2014/10/15/europe-energy-imports-idUSL6N0SA1SS20141015

Must improve the EU books(buck$)

euroboom13

power101 wrote: »

For every $10 drop it leads to a .1% increase in growth in Europe. So it should lead to a .3% increase year over year if prices remain around $80 dollars next year. As Ireland is more dependent than most of europe for oil and gas it should lead to at least an extra .5% increase in growth next year if these oil prices remain low.

If oil price saves the EU 100billion euros on imports, that's 3% reduction on overall imports for Europe.

Has to have a greater impact than 0.3%?
Major QE couldn`t do as good?

stevedublin

Mission accomplished? -no QE from Draghi (but some guff about possible QE in the future).
time for oil to go back up now maybe?

euroboom13

Oil imports up 40%,so demand is increasing(or just hedging low prices) which in turn ,is keeping inflation figures temporarily low.

But if oil import volume hadn`t increased, we would already see inflation rising.

There is a corner coming here , in Europe/Ireland.

http://www.rte.ie/news/business/2014/1113/659003-cso-exports/

euroboom13

I have just heard from our reliable national broadcaster ,that if oil prices keep going down it will drive us into a deeper recession.

How ridiculous is that, our biggest import has got 40% cheaper and our GDP is meant to weaken.

If oil prices sustain ,we are in for major growth in the next 6months, (start investing in equities)

Make your own minds clear on this, mine is.gla

euroboom13

http://www.independent.ie/business/irish/take-gdp-growth-with-pinch-of-salt-state-watchdog-30771029.html

prepare for inflation/rate hikes next year

stevedublin

euroboom13 wrote: »

http://www.independent.ie/business/irish/take-gdp-growth-with-pinch-of-salt-state-watchdog-30771029.html

prepare for inflation/rate hikes next year

lower GDP indicates low growth, which is not inflationary

euroboom13

stevedublin wrote: »

lower GDP indicates low growth, which is not inflationary

Sorry ,my view on that report is contrarian ,they are playing down obvious growth as an anomaly .

Geuze

No they are not.

IFAC are pointing out that the GDP stats now include "contracted manufacturing" which takes place offshore, and so which does not generate jobs here.

Please see here:

http://economic-incentives.blogspot.ie/2014/11/gdp-growth-and-contract-manufacturing.html

euroboom13

Yes

They are playing down all signs of growth, also increased imports of oil to counter oil price drop which would have shown more growth.(reduced imports/increased exports=growth)

conditioned games

Oil prices are now down 35% since June after yesterday’s OPEC meeting not to cut output. I can’t see how the sunni muslim countries of Saudi Arabia, Qatar, Kuwait and UAE will hurt Russia as it has enough central bank reserves to last a number of years. It will hurt Iran though and bring forward the development of their nuclear power stations, also will hurt Venezuela as they rely on funds from oil to support their large social programs.

For every $10 fall in oil price adds 0.13% to the worlds output. Average price of unleaded petrol at the pumps in July this year was 1.58 and now it’s about 1.43 which is about 11% fall. Still the medium term trend of 3-5 years will be over $200 a barrel compared to the $70 it’s now at.

euroboom13

If you were sure oil would go from $70 to$200 in the next five years ,you could retire on a small punt.

I wouldn't bet on it. This has been coming for a good few years with America ramping up production and with EU restraining from QE.I think oil prices wont recover for at least 5yrs(raise above $120).The recovery play Europe has been following doesn`t make sense, until you look at oil.

jank

My reading of it is that the OPEC members are trying to keep production high as to hurt the emerging oil sands/shale industry in North American which is why there is so much supply at the moment. The lower the price, the bigger the pain and loses high cost producers have to endure, many of which are apparently in US, which could force them out of business and cut supply long term. There is a similar tactic being used in Australia by the big two iron ore producers where they have such a cost advantage that even a 50%+ cut in the price of iron in the past 12 months they are still making a profit while smaller caps in Australia and China are losing huge amounts of money. They (BHP and RIO) are actually projected to ramp up production pouring fuel onto the fire.


Back to oil, then again, if you listen to others its the Saudis and the US partnering up against Russia who's currency has been decimated.
Interesting times anyway as the price is projected to under $60 to maybe even $55 a barrel.
With prices that low its going to hurt a lot of countries that rely in it. There could definitely be some value plays though over the coming months.

lucky john

jank wrote: »

My reading of it is that the OPEC members are trying to keep production high as to hurt the emerging oil sands/shale industry in North American which is why there is so much supply at the moment. The lower the price, the bigger the pain and loses high cost producers have to endure, many of which are apparently in US, which could force them out of business and cut supply long term. There is a similar tactic being used in Australia by the big two iron ore producers where they have such a cost advantage that even a 50%+ cut in the price of iron in the past 12 months they are still making a profit while smaller caps in Australia and China are losing huge amounts of money. They (BHP and RIO) are actually projected to ramp up production pouring fuel onto the fire.


Back to oil, then again, if you listen to others its the Saudis and the US partnering up against Russia who's currency has been decimated.
Interesting times anyway as the price is projected to under $60 to maybe even $55 a barrel.
With prices that low its going to hurt a lot of countries that rely in it. There could definitely be some value plays though over the coming months.

The price of oil is the least of Russians worries. Since they sell in dollars the currency devaluation is softening the price drop blow. They have two bigger problems. The obvious one is the devaluation driving the cost of imports through the roof. The other is that sanctions could actually grind their oil production to a halt. As it is they have very high production cost because of where their oil fields are. Add to that the drought on parts and equipment needed to extract the oil and the withdrawal of big name oil companies from Russia. Its not inconceivable that they won't have oil to sell in six months time.

Then in steps opec and the US. Prices rise and Saudi have a new customer ( Germany, Europe) who buys the oil originally ear marked for the US. The US fire up the frackers again in the knowledge that the Russian bear is caged without a (nato) shot been fired.

Pure conspiracy theory on my part of course but when it comes to oil the possible theories are endless. One thing for sure though, if the mortgage problems almost destroyed the worlds banks then cheap oil will have far reaching effects on a similar scale eventually.

euroboom13

This is big and what countries have hedged it, won`t be obvious for a while but one thing for sure ,someone`s getting shafted.

My guess is, its more to do with consolidation of the middle east, than cold war revisit. Putin ,despite the pretence, is very much following a pre-agreed strategy with his g8 buddies.

lucky john

How low can oil actually go???? We are heading for $60 very soon by the looks of things. With the world producing way more than we need every day is there anything stopping it from continuing to fall. Is $40 a possibly or will production stabilise, either through opec or through bankruptcy and shut down by some producers?

And speaking of falling, is gold about to follow oil down a slippery sloap as well. The swis vote looks like a no so I suspect gold price will take a hit tomorrow.

euroboom13

mmmm...... and when money leaves one wealth store, it must turn up at someone else`s door, so there is a bubble going to turn up somewhere..

Newly stress tested European bank vaults.... happy days

lucky john

euroboom13 wrote: »

mmmm...... and when money leaves one wealth store, it must turn up at someone else`s door, so there is a bubble going to turn up somewhere..

Newly stress tested European bank vaults.... happy days

Can't disagree with u there. For the next 6 weeks anyway. short oil. Short gold. Long banks.

jank

Looks to be right. Oil still heading south.... taking many indexes with it.

euroboom13

What effect will cheap oil have on Russia ? ...lol
Where next?
$58

This is domino`s !

lucky john

No domino has fallen....yet. it will be early next year when the chickens come home to roost. Most countries or companies would still be paid higher prices as forward selling and hedging contracts are still in the system. In a couple of months time when funds for todays sub $60 oil start coming in then the full reality will start to bite. The dominoes are lined up as we speak waiting for that first one to fall.


Will a Venezuela default be the first as expected or will putin do something totally drastic and unexpected before then. A cornered rat is dangerous but nothing compared to a cornered bear.

This whole economic situation is very interesting to watch unfold.

euroboom13

Good money to be made if you can figure out ,what and where next.

lucky john

euroboom13 wrote: »

Good money to be made if you can figure out ,what and where next.

Just too early yet to try anything. Obama is going to stick the boot in Russia some more but at some stage this will have to end. International politics is a dirty game but yesterday's enemy could be tomorrow's NBF. Just so long as putin doesn't do something mad this situation could suddenly defuse itself. The Russian stock market could go from one of the worst preforming in 2014 to the best in 2015. Way to soon yet, more pain for Russian first, but in a couple of months though maybe....

Kristopherus

I don't think too many tears would be shed globally if Putin trotted off to oblivion. Then there might be some investment opportunities in the rebuilding of Russia.

lucky john

Kristopherus wrote: »

I don't think too many tears would be shed globally if Putin trotted off to oblivion. Then there might be some investment opportunities in the rebuilding of Russia.

His popularity is at an all time high. In Russia he is playing the us against then thing exceptionally well. Obama, Kenny, Draghi, Cameron ect will be long gone before him I suspect.

conditioned games

How long do ye think oil prices will stay at these low levels and is it good news for the unstable world economy we have today.

I think the longer oil remains under 80dollars a barrell the greater the chance stock markets will crash in 2015 instead of 2016. Prior to the stock market crash in 2008 it was junk bonds that crashed first. Main reason for that was the fall in oil prices similar to now. 20% of junk bond market is made up of energy companies. These have poor credit ratings paying higher interest rates. We are begining to see these companies struggling to sell new bonds and their interest rates are increasing especially highly indebted companies in the fracking industry.

A investor named Josh Birnbaum made a huge bet against the subprime mortgages when he was with goldman sachs in 2007. He has recently made a $2billion bet against junk bonds and i think it will come off for him. Every time junk bonds collaspe it has been quickly followed by stock markets.

euroboom13

conditioned games wrote: »

How long do ye think oil prices will stay at these low levels and is it good news for the unstable world economy we have today.

I think the longer oil remains under 80dollars a barrell the greater the chance stock markets will crash in 2015 instead of 2016. Prior to the stock market crash in 2008 it was junk bonds that crashed first. Main reason for that was the fall in oil prices similar to now. 20% of junk bond market is made up of energy companies. These have poor credit ratings paying higher interest rates. We are begining to see these companies struggling to sell new bonds and their interest rates are increasing especially highly indebted companies in the fracking industry.

A investor named Josh Birnbaum made a huge bet against the subprime mortgages when he was with goldman sachs in 2007. He has recently made a $2billion bet against junk bonds and i think it will come off for him. Every time junk bonds collaspe it has been quickly followed by stock markets.

The stock market is in a state of none recovery for the last 7yrs,and further collapse is doubtful IMO.
Hugh change happening and it seems to be a political squeeze ,on credit drunk nations (similar to Europe 07),Russians have backed property in London, and IMO I see capitol heading to newly tested banks ,only growth area left, only way is up, and with rates so low, any investment boom has plenty of scope for the ECB to suppress/control !!

As for oil, USA and Europe have done almost everything in there power over the last 7 years to reduce consumption and increase production/storage, what we are seeing now is the result of a well taught out strategy, and will take a few years to play out.

But how this plays out ,will only be clear in the rear view mirror.(or guessed right through a frozen windscreen)

braddun

taxes in Ireland will kill off most savings

1st dalkey dalkey

Slowing world growth (demand) and increasing world supply (mainly from North American non conventional sources), is the problem here. That and a struggle over market share.
Traditionally where there was an oversupply, OPEC would reduce production to bring balance back into pricing. That invariably led, in the past, to a loss of market share for the Saudi's, who were the only one's to actually do what they promised.
The Saudi's have now decided that enough is enough. They will not cut production. It is someone else's turn to get shafted. But no-one is volunteering.
The situation is complicated by the system of hedging. This in effect means that the current price takes some months before it effects producers. It will be early next year before any major implications are seen.
Except, of course, for politics.
I don't think that politics brought us here, but it will certainly make use of the current situation. Therein lies the real danger.
Oil will eventually rise again. It is till a depleting resource and new plays are getting more and more expensive to exploit. But will politics have totally changed the environment by then?

For ever odd

If we get the extra cold winter that's been touted, (the beast from the east) it could turn everything on its head.
Keep an eye on the weather.