CRUDE AT $120 WITHIN MARCH 2015
We
are all jubilant about the crude prices have come down to $85 and it’s expected
to come further below as per reports of the big giants of the world market. But
I find the crude prices to shoot up to $100 by December and $120 by March 2015.
Low crude prices theory is based upon that Europe, US and China are under the phase
of slow down and hence there is not much demand as compared to the
productivity.
Well these theories are good for academics but not for
intelligent animals. Low crude prices are no doubt beneficial to the Emerging
economies who are importer of crude like India. Surplus funds from low crude
prices leads to investments in progressive segments but the game is for a very
short lived phase. Many people have now thrown the question on RBI about cutting
down interest rates as crude prices are low and hence fiscal deficit is coming
down further Indian economy is entering into the proper channel of FRBM .I find
RBI has negligible position for cutting down interest rates. We must not forget
that THE collapse of the Soviet Union in 1991 had many causes but the prime
among them was the fall in the price of oil, its main export, by two-thirds in
real terms between 1980 and 1986.
- With oil at $115 a barrel, Saudi Arabia earns $360 billion in net exports a year; at $85, $270 billion. Its budget has almost certainly gone into the red
- Venezuela’s-Every dollar off the price of a barrel cuts roughly $450m-500m off export earnings. By Deutsche Bank’s calculation, the government needs oil at $120 a barrel to finance its spending plans—higher than before the recent tumble.
- Iran needs oil at $136 a barrel to finance its spending plans,
- Brazil wants a high oil price to attract investment to its ultra-deep offshore (pré-sal) oil reserve
Sovereign funds size of the Middle East and Arab world in
terms of exporting of crude has swollen to a mammoth level. This is a threat for
the US and European economy as the biggest question of funding of various
militants group is question of trillion dollars. For me this is an assumption and the best
reply for the same lies with my readers.
The most astonishing part is that Libya has started production of crude despite
of so many tension raises the eye brows of billions. Libya would somehow be pumping
40% more oil at the end of September than it had just a month earlier? Supply
rises by 810,000 bpd, led by Libya On the other hand Saudi Arabia’s
decision to boost output to protect its market share and hurt American shale
producers and see off new developments in the Arctic was also a big shocker.
Further
Russia has aggressive planning for its military and defense and the funding of
the same is dependent on the crude export at the price of $130.
We Indian
needs huge amount of storage facilities where cheap[ crude can be stored and
can be consumed later on which will also give the biggest advantage to the
Indian economy when crude prices increases in the international market where as
India could enjoy a low price particularly for the agricultural sector. We need
to plan storage facilities and develop alternative energy for the agriculture
sector so that we can get out of the clutches of the crude prices. The recent
report of the big cats of the world market that crude prices can come down to
the level of $75 has been said since in the US, the weighted average
marginal cost of crude production at the shale-dominated onshore plays is about
$73/b. Hence they are not making a loss. Further the report have been
released since they want the world market to create massive short position in
the near term and make zoom up rally in the long term something which happened to
gold during Feb-2013. Another big winner, paradoxically, will be the U.S. oil
industry. Fears that the price plunge will force cutbacks in production appear
very premature. In fact, if Congress gets its act together and lifts its
forty-year old ban on oil exports, we could actually see a spurt in production.
The
other big winner will be the U.S. consumer. Americans are already seeing the
impact at the pump, with gas prices averaging $3 a gallon. If the price of
Brent crude falls to 80 dollars a barrel, that’s the equivalent of a $600
annual rebate for every American household and a $1.8 billion daily windfall for the
world economy.
US
economy will face slowdown and Europe too but do you think that Indian markets
and economy would grow particular the ones who are dependent on export.
Moreover these developed economies knows very well that if crude prices goes up
to the level of $120 then inflation will swell and interest rates would not
come down and rupee as well as economic growth will be under intense pressure
to grow. Hence the best way to create problems for this new government and
economy is crude prices. Hence its quite easy to derail the growth plan of the present
government and bring slow down. This is why we need huge storage facility and
also intensive growth for alternative energy particularly to the solar sector.
This month's output is OPEC's highest since November 2012
when it pumped 31.06 million bpd, according to Reuters surveys. Involuntary
outages, such as in Libya, kept output below OPEC's nominal 30 million bpd
target in earlier months of the year. Iraq, like Libya, has also managed to
increase supplies despite fighting in the country. Oil output rebounded due to
higher exports from Iraq's southern terminals and increased output from fields
in Kurdistan. An advance by Islamic State fighters nearby crude wells is
an significant threat for the crude to grow.
After
reading the affects about the losers due to the falling crude prices do you think
that they will remain silent’s and will not do anything where crude will shoot
up to the level of $120. A return to sub $100/b oil also comes as oil executives
confront growing investor calls for more capital discipline to defend revenues
against ballooning oilfield service bills. Creeping industry costs and
fast-growing costs of accessing more remote, complex sources of oil and gas and
have played a key role pushing breakeven costs perilously close to current oil
prices. The London-based group said that collectively, the world’s oil
majors are looking at a potential capital spend of $548 billion over the period
2014-2025 on projects that require a market price of at least $95/b. Hence
if oil companies start losing billions then unemployment would increase which
will create massive prolonged slow down. Do you think that these exporting
economies would afford that at the cost of low crude prices?
The battle is now between US and Russia and Middle
East countries who export crude. This is further proved from the latest US air
strikes in Syria targeted oil facilities controlled by Islamic State (Isis) in
a deliberate attempt to wipe out a lucrative source of income for the rapidly
expanding jihadist group. The Islamic State, which now controls an
area of Iraq and Syria larger than the U.K., may be raising more than $2
million a day in revenue from oil sales, extortion, taxes and smuggling,
according to U.S. intelligence officials and anti-terrorism finance experts.
The Islamic State is probably the wealthiest terrorist group we’ve ever known,”
said Matthew Levitt, a former U.S. Treasury terrorism and financial
intelligence official who now are director of the counter terrorism and
intelligence program at the Washington Institute for Near East Policy.
Hence that’s the reason why crude prices are coming down but the biggest question
is that how long the price will be falling. The war for Crude is cruel and I
fear India should not get burnt. That’s the reason I am focusing and urging
more on increasing the storage facility of India for crude.
According
to the Iraq
Energy Institute, an independent, nonprofit policy organization
focused on Iraq’s energy sector, the army of radical Islamists controls
production of 30,000 barrels of oil a day in Iraq and 50,000 barrels in Syria.By
selling the oil on the black market at a discounted price of $40 per barrel
(compared to about $93 per barrel in the free market), ISIS takes in $3.2
million a day.
My
point is that why we should get into this problem and why not aggressive look
for freeing up the agri-sector from the dependency of oil and focus on solar
power.US is squeezing up Russia and Middle East so as to cut down the funding.
Now do you think that RBI will cut down interest rates and take the hit later
for rising crude prices?
We
should build huge reserves/storage of crude at these low levels and also work
hard to develop solar power energy based energy supply for agri-sector to
control the affect of rising crude prices.Also remember that what ever losses happens today will be coped up in the long term.So their is less space to smile.