..was reading Charles Schwab weekly stock report and found the mention of $80 dollar /B gas from Saudi Arabia.. generosity does not come suddenly.. politics are always behind these moves.. the recent conflicts from the middle east are enough to raise the white flag and plead for mercy..theron the $80 dollar/b gas..
If it was just something like oil that was getting cheaper because production costs had been cut that won't be a bad thing. But it seems to be because demand for it has completely fallen away at the same time as production has grown. Saudi Arabia made the mistake of dropping production to support prices 30 years ago. They seem determined not to make the same mistake again so its likely tin Europe up portthe same mistake again. We are possibly in a period of plentiful and cheaper ocircle up owned shares in US franking companies I'd be dumping them quick. It may be cheaper to import than frack in a few months.
So going back to prices for oil dropping because of demand. What has happened to that demand? Well why would you spend money to day on a product that might be cheaper tomorrow. Oil is not just to heat your house or fuel your car. Its used in the production of every plastic product you buy so these products will get cheaper. They could get even cheaper next month. Thats whats happening in Europe now. No one will spend so prices drop, demand falls further and it becomes a vicious circle. Wheather you believe what governments are telling you doesn't matter. Just look at how entrenched unemployment in Europe is. Look at the advanced manufacturing orders in Germany and how much they fall each month. There is no one spending, not even governments.
The only bright spot is actually ireland. Because of our export links with the US and UK our economy is growing. Employment is growing and because of that consumers have the confidence to spend. That has given the government here the chance to spend as well. 2 billion on social housing alone announced today and with a public private partnership which makes total sence. More jobs, more confidence, more spending, more growth. Bkir may suffer as general markets readjust but in the background they are growing value that will be recognised in due course.
If imports get cheaper inflation(free up expendable income) should grow, maybe different to export countries but not importers (I don't agree with inflation figures anyway cause property is the only real deflation)(I am not of the opinion that government figures are there as a road map for investors to live by.)
There's plenty of argument about what should or shouldn't be included in the basket of goods that countries use to calculate the inflation rate. At the moment oil/energy is included so as such when it gets cheaper it reduces our cost of living. That's deflation. When the European inflation rate is announced at the beginning of November and December it will be less than 0.3% for sure and the way its stacking up in Germany possibly 0.1%.
The uk is a good example at the minute. Oil and groceries (supermarket price wars) have gotten cheaper there so the inflation rate has fallen there to 1.6%. the consequence is a probability that interest rates will not rise as soon as people think. The knock on effect been that sterling has weakened against the euro.
Saudi Arabia can produce oil at$20 a barrel, way cheaper than anyone else. I don't know what their debts are but if after a half century of oil production they have any debt at all well more fool them.
Sorry John we differ again on inflation .Reducing the cost of everyone's energy bill should drive inflation.(and rates) Considering Europe is an importer we will give out less for more.
The Saudis need to $80 a barrel, without increasing production, to finance its debt repayments, if oil goes below this it will have to increase production to make up the difference, sending prices lower.
Brent oil down to $86 a barrel. Demand down by 25%. US production at a 30 year high. Iran, Iraq Saudi Arabia have all dropped prices which is fine because they can produce it cheaper than Russia and the US. The latter 2 need $76 to break even. So is this a shake down by the middle east or is it pointing to a major world downturn?
One thing for sure it's going to drop the euro area inflation rate below 0.3%. We do live in interesting times.
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