[thatsdileep]

Originally Posted by S_U_N

Isn't this all about not being happy that oil companies are forced to work with reduced margins? Oil companies have minted money for many decades. All the typical overheads and inefficiencies will need to be done away in this 'tough time'.

I see this no different from any other industry. Sorry, no sympathies from my side as a consumer.
The only one making a killing in this is the GoI who keeps in increasing various taxes and keeps making unprecedented money. I just hope that the money is used in a good way.

I understand your point...as a general public (aam admi) yes, even I would like to pay less for my fuel. But since I've some background from the oil and gas industry I would like to explain the consequences of such low oil prices. If such low oil prices continue, most of the upcoming oil field developments will be put on hold which means the revenue of an economy will go down. This in turn will have repercussions on the other sectors as well. Oil companies will cut down their investments (it's already happening since early this year) which is a bane for any country as yearly income levels drop. On an individual level, there will job cuts in oil and gas industries which will result in unemployment, loan defaulters, etc. In India this impact might be smaller scale as we don't have many oil reserves (only major companies ONGC, Reliance, Cairn India), but think in global scale where some of the countries primary income is oil (all middle eastern countries, Russia, etc.). At the current oil rates some of these countries where oil reserves are difficult to tap into (Russia) and extract cannot break even as the costs are higher than what they can sell it for. However, they cannot stop production as that might be their primary source of income and they would still like to generate some revenue, even though at losses, as they need to keep their economy running. In long run these not a sustainable oil rates and market will crash. While lower prices may seem attractive momentarily, in long run global economy will slow down and will have severe issues.
One more point is that the current slump in oil price is due to excess supply than demand. But no one is willing to stop production or some might not have a choice to stop. Ideally the price per barrel should be around 75-80$.

Didn't want to create a boredom with this topic here but thought of sharing some insights in oil industry for better understanding.

[stanjohn123]

Originally Posted by thatsdileep

One more point is that the current slump in oil price is due to excess supply than demand. But no one is willing to stop production or some might not have a choice to stop. Ideally the price per barrel should be around 75-80$.

I do not understand how this situation cropped up where demand is less than supply. How can this scenario ever happen ? It's not like the world is suddenly moving to solar or electric energy.

Like you said few countries like Russia will suffer but middle eastern countries may not because all these years they have been getting hugely surplus budget during the high oil prices period. So if this trend continues for a few more years probably they too might suffer but that's highly unlikely.

[sgiitk]

Originally Posted by saurabhkum

Petrol price cut by 2 Rs and diesel by 0.5 Rs

In Kanpur is is ₹1.57 and 0.43 respectively. I thought UP was on the floor VAT so was expecting the full impact to come through.

Fuel dealers are threatening a prolonged agitation if the floor/flat VAT is not stopped.

I think we should be prepared for a steep hike next fortnight with Brent shooting up.

[Vik0728]

Filled up at Indian Oil (South End Circle) today and I was like


Petrol - ~64/- per liter

Diesel - 47.04 per liter

Reminds me of the school days - "Make hay while the Sun Shines" !!

[thatsdileep]

Originally Posted by stanjohn123

I do not understand how this situation cropped up where demand is less than supply. How can this scenario ever happen ? It's not like the world is suddenly moving to solar or electric energy.

Like you said few countries like Russia will suffer but middle eastern countries may not because all these years they have been getting hugely surplus budget during the high oil prices period. So if this trend continues for a few more years probably they too might suffer but that's highly unlikely.

Probably I didn't cover a few more points which might give a better understanding of current situation.

• The oil & gas pricing/supply/demand is more of a speculative game (just like stock market). It is perceived/speculated that there will not be any great increase in global demand for oil in the near future (at least for next 2 years) which causes the demand to stagnate if not reduce (again due to speculation).
• It is believed that the oil price drop is pushed by Saudi to knock out US as the fracking process heavily going on in US is quite expensive (in the order of 70$/bbl). So Saudi started producing left and right and their production costs are way cheaper. But due to technical advancements the fracturing procedures have become more efficient and US is still able to produce similar amounts or more by using almost half the number of rigs (compared to what they used previously) which reduced the cost of production dramatically and hence increased production. This made US from being an importer to essentially an exporter of oil and gas. Even China started producing more through fracking.
• Due to the Iran's interests in nuclear weapons and activities, US had placed huge sanctions on it. Inspite of that Iran has been producing in the last few years quite actively. Earlier this year the sanctions on Iran have been lifted (after they agreed to stop their nuclear program) and they can do business with any one. They cranked up their production.
• Despite the low oil prices, none of the oil giants (US, Saudi, Russia, etc.) have made any efforts to slow down or stop production due to their own reasons which has caused excess supply than the perceived needs in the near future. I think they are actively trying to dethrone the other and kill their economy. Russia might be the first in firing line if this doesn't stop.

Although the cost of production in middle east is relatively much lower (approx. 15-25$/bbl), even they are feeling the heat, as suddenly their margins are halved or even lower.

This is how a global economical crisis can occur...I hope not though!!!

[1lokesh]

2 bunks on LBS marg denied me petrol today morning.

Seems that they didn't order any stock yesterday in anticipation of price cuts and losses thereof. But then isn't their stock compensated by oil companies against price fluctuations?

Anyone else faced something similar in Mumbai today?

[Vishyvish]

Nay. Tanked up this morning at my regular IOC bunk near the cargo terminal, Sahar at INR 66.23/lt.

[StarScream]

Originally Posted by thatsdileep

I understand your point...as a general public (aam admi) yes, even I would like to pay less for my fuel. But since I've some background from the oil and gas industry I would like to explain the consequences of such low oil prices. If such low oil prices continue, most of the upcoming oil field developments will be put on hold which means the revenue of an economy will go down. This in turn will have repercussions on the other sectors as well. Oil companies will cut down their investments (it's already happening since early this year) which is a bane for any country as yearly income levels drop. On an individual level, there will job cuts in oil and gas industries which will result in unemployment, loan defaulters, etc. In India this impact might be smaller scale as we don't have many oil reserves (only major companies ONGC, Reliance, Cairn India), but think in global scale where some of the countries primary income is oil (all middle eastern countries, Russia, etc.). At the current oil rates some of these countries where oil reserves are difficult to tap into (Russia) and extract cannot break even as the costs are higher than what they can sell it for. However, they cannot stop production as that might be their primary source of income and they would still like to generate some revenue, even though at losses, as they need to keep their economy running. In long run these not a sustainable oil rates and market will crash. While lower prices may seem attractive momentarily, in long run global economy will slow down and will have severe issues.
One more point is that the current slump in oil price is due to excess supply than demand. But no one is willing to stop production or some might not have a choice to stop. Ideally the price per barrel should be around 75-80$.

Didn't want to create a boredom with this topic here but thought of sharing some insights in oil industry for better understanding.

Spoken like a true oil man. But just to give you the flip side, here is what low oil does for a net importer like India: Inflation is lower, therefore rates in the economy fall, which is good for consumers and domestic consumption. The fiscal deficit falls, which is good for the sovereign rating. Money that is used to import oil is used for other productive purposes. All this translates into higher GDP growth. To remind you, the last time commodities were low, India's growth touched 8.5%. The supercycle caused it to drop to under 5%.

I really can't shed a tear for companies that benefited from high oil for a long time at the cost of most common people around the world.

And the average long-term price of oil should be ~$50:
http://www.bloomberg.com/news/articl...0-year-average

Originally Posted by thatsdileep

Probably I didn't cover a few more points which might give a better understanding of current situation.

• The oil & gas pricing/supply/demand is more of a speculative game (just like stock market). It is perceived/speculated that there will not be any great increase in global demand for oil in the near future (at least for next 2 years) which causes the demand to stagnate if not reduce (again due to speculation).
• It is believed that the oil price drop is pushed by Saudi to knock out US as the fracking process heavily going on in US is quite expensive (in the order of 70$/bbl). So Saudi started producing left and right and their production costs are way cheaper. But due to technical advancements the fracturing procedures have become more efficient and US is still able to produce similar amounts or more by using almost half the number of rigs (compared to what they used previously) which reduced the cost of production dramatically and hence increased production. This made US from being an importer to essentially an exporter of oil and gas. Even China started producing more through fracking.
• Due to the Iran's interests in nuclear weapons and activities, US had placed huge sanctions on it. Inspite of that Iran has been producing in the last few years quite actively. Earlier this year the sanctions on Iran have been lifted (after they agreed to stop their nuclear program) and they can do business with any one. They cranked up their production.
• Despite the low oil prices, none of the oil giants (US, Saudi, Russia, etc.) have made any efforts to slow down or stop production due to their own reasons which has caused excess supply than the perceived needs in the near future. I think they are actively trying to dethrone the other and kill their economy. Russia might be the first in firing line if this doesn't stop.

Although the cost of production in middle east is relatively much lower (approx. 15-25$/bbl), even they are feeling the heat, as suddenly their margins are halved or even lower.

This is how a global economical crisis can occur...I hope not though!!!

A few points:
#Some producers in North Dakota's Bakken shale field are competitive under $30/barrel.
#China has a real problem with shale. Despite having the world's greatest shale reserves, the geology is difficult - it is not flat land like the US- and that makes extraction difficult and expensive. They are nowhere close to replicating America's success and in fact have cut their gas output targets to 2020.
#Iran hasn't even started. Mind you, prior to the sanctions it was OPEC's second-largest producer. Iran's output was 2.85 million barrels/day in July. They want to increase production to 5.7 million barrels/day.
#It started off as a OPEC vs shale thing. China's slowdown and Iran's production added to it.
#But it's all good for India. And remember these companies will be the first to happily price gouge. So the crocodile tears now don't really work.

[pgsagar]

I am more concerned about my welfare (as a consumer, I have every right to. It is my money and why should I pay a penny more than necessary?) and I am more concerned about economy of our nation than bunch of middle eastern nations who had been making a killing all these decades anyway. They have enough reserves to tide over this crisis. If not, they will adapt to changes and learn to live within new parameters. Why worry about them?

And before someone goes telling me, how the global economy is interlinked and .... I would say, if they were to double oil prices tomorrow, will I benefit in any way? Naaw. Doesn't cut with me.

[humyum]

Originally Posted by thatsdileep

[*]Due to the Iran's interests in nuclear weapons and activities, US had placed huge sanctions on it. Inspite of that Iran has been producing in the last few years quite actively. Earlier this year the sanctions on Iran have been lifted (after they agreed to stop their nuclear program) and they can do business with any one. They cranked up their production.[*]Despite the low oil prices, none of the oil giants (US, Saudi, Russia, etc.) have made any efforts to slow down or stop production due to their own reasons which has caused excess supply than the perceived needs in the near future. I think they are actively trying to dethrone the other and kill their economy. Russia might be the first in firing line if this doesn't stop.

Let me give you a deeper perspective on this through a geo political perspective.

Iran was sanctioned for the "probable" nukes it was building like Russia was sanctioned for a "probable" hand in the Malaysian airlines attack. None of these have any credible proof for any kind of sanctions. America has blown off an Air Iran 655 plane some decades back with 260 passengers in it, killing them all, forget sanctions, it did not even apologize. So the yard stick in today's times is different for USA and its allies and different for other countries.

Now coming to the OIL, I believe its more about influence. Russia is dwindling, Iran was dwindling, its currency lost quite a bit of value, Iran lost quiet a bit of customers in oil because of the sanctions, all America and its allies aka Saudis wanted was for Russia and Iran to stop supporting Syria and Assad. They did not budge and neither did Assad fall and the conflict dragged on, its 5th year now.

Saudi's want Iranian and Russian influence to dwindle, Iraq's government is ruled by a Shia government, as is Assad who is a Shia Alwaite, Iran is one too and so is Hezbollah who is helping Syria. Assad winning would end the war in Syria and help spread Irans influence in the region even more. We can see Israel getting all worked up with Iranian influence on its border which neither will it like nor America will so they have to stop it anyhow.

Bascially, oil is a weapon for world destruction now, yes India is happy because of lower prices, but in the long run, this will fuel more wars with countries getting more aggressive to counter each other leading to ultimately a world war as one spark is enough to ignite all this. India will not be okay if there is a major war going on in the middle east. During the Iran-Iraq War of 8 years, there was a duration called as Tanker Wars where countries in conflict destroyed each others tankers which were at sea to deliver oil. Could happen again, remember Iran threatening to shut down the Straits of Homruz? Not to mention ISIS which if they end up taking over Iraq and Syria, will have lots of money, oil and power to destabilize the entire world and kill lakhs more in both these countries. Look at the refugee crisis in Europe right now, its unreal. Hunger and homelessness can create riots and destabilize even the best of countries.

This situation looks much worst than what cold war was.

[sgiitk]

Iran wants to pump another 1m bbl per day. What will be the impact on Brent.

[geotracks]

Once question I have. Diesel prices have significantly reduced from what they were a few months back. When the diesel prices were climbing, the taxi operators increased tariffs. Now when the diesel prices have gone down the taxi tariff seem to be the same. They did not come down. So how does this work for the end customer renting cabs? Or is it that it is very difficult to change tariffs every so often, so the benefit is always passed on to the cab operators?

[drsingh]

Originally Posted by humyum

Let me give you a deeper perspective on this through a geo political perspective.

Iran was sanctioned for the "probable" nukes it was building like Russia was sanctioned for a "probable" hand in the Malaysian airlines attack. None of these have any credible proof for any kind of sanctions. America has blown off an Air Iran 655 plane some decades back with 260 passengers in it, killing them all, forget sanctions, it did not even apologize. So the yard stick in today's times is different for USA and its allies and different for other countries.
This situation looks much worst than what cold war was.

Ah. A fellow enlightened soul on the mess that is Middle East geopolitics.

Would love to swap notes and have a detailed conversation.

I'd like to add another point. The energy strategies of the USA and Europe seem to be going solar/wind.
That's why most developed nations sitting on fossil fuels/nuclear reserves are desperate to monetise their resources before they become outdated.

(France, Germany, Australia, USA, Canada)

The Saudis are being hit from all sides. Loss of economic power due to oil. Hijacking of their wahabi radical agenda by ISIS. And having to compete with Russia, Iran, Africa, USA to sell oil to large consumers. They're also trying to cobble up a military force to project power in the region without American support.

Oil is set to remain comparatively cheap for a decade. Until India becomes as big a consumer as China. Or some geopolitical event triggered by vested interests to alter supply.

[thatsdileep]

Originally Posted by humyum

Bascially, oil is a weapon for world destruction now, yes India is happy because of lower prices, but in the long run, this will fuel more wars with countries getting more aggressive to counter each other leading to ultimately a world war as one spark is enough to ignite all this. India will not be okay if there is a major war going on in the middle east.

This situation looks much worst than what cold war was.

Cant agree with you more. I covered it from global oil business perspective and you had it from geo political angle. Yes, in a longer run its not healthy.

[sumeethaldankar]

Prices set to rise in coming weeks.

http://articles.economictimes.indiat...l-prices-litre