Millhouse

Oil is currently 43usd thanks to the Chinese devaluing their currency. Expected to drop again today as they devalued again overnight despite saying the were only going to devalue once.

scrubbedexpat141

It's always the Chinese.

Venezuelan007

42... it can even go to 39... thats the major support for oil.

If it goes lower than that, it means WAR

DXBtoDOH

One of the peculiar aspects of economics is that there are certain benchmarks and if the price goes above or below that benchmark it has impacts on how the public perceives the economy, with tremendous knock-down effects beyond what is rational.

In short, what is the oil price that would send the Gulf economies in a psychological tail-spin?

Venezuelan007

Well I dont know about psychology... and specially if that works in this area of the world.

All I know is that we are back in 2009 prices, with a lot more production going on, so my guess is, it can get worse.

Add to that $ is very strong and a "currency war" is about to start.

KSA is supposed to cut its output in September, that might help the price, not much. But that would be accepting they are suffering.

DXBtoDOH

Dubai Marina property prices plunge by up to 18 per cent | The National

Yadda yadda yadda. 18% decline is pretty sharp.

Irishbeekeeper

can someone please explain to me in gayman terms why the oil price matters to the gulf countries??
I mean it is coming out of the ground right? what is the actual cost per barrel of taking it out and then selling it to someone? and what the frack is fracking? and why is it cheaper ffs!
and China is not producing any oil (apart from the one they use in the massage centers) so how does their currency devaluation effect anything? no, not how...but why?

Bahtatboy

There's a basic fixed price per barrel for getting the stuff out of the ground. The basic fixed price varies, mainly in relation to how difficult it is to get out of the ground: for Saudi it's relatively easy, but for others (whose main reserves are offshore) it's more difficult, and therefore more costly. Plus, it's generally getting more difficult to extract as reserves are depleted.

I don't have up-to-date figures, but if you look at, say, Saudi, on top of its $/barrel cost of extraction, it also has to use the selling price to cover the cost of further exploration and investment in replacement infrastructure, plus the cost of running the country (their putative tourism industry isn't quite in place yet, so they don't have many other sources of income). The current price is very close to below break-even for Saudi; for Iran it's below break-even because of the amount Iran needs to expend to repair its infrastructure in order to begin selling in large quantities.

I'm sure if you do a googlewhack you'll get a more comprehensive answer, with up-to-date data for production costs.

I'll leave the other questions for someone else.

Venezuelan007

When the infraestructure to extract, process and ship your oil cost 4bn (any offshore field), plus you have to deal with maintenance, equipment depreciation, etc... Then you care about the price.

It varies, onshore, sweet, light oil like kuwaits or saudi, should be around 10-12$ to produce.
Offshore, sulfur, and full of crap oil, it goes to 25$ and you cant sell it at full price, unless you spend on treatment and enhancemennt

Saudis play was, "i dont need to invest to increase or mantain my output so my costs are less, I can deal with cheap oil"

Meanwhile in Canada, Russia or mexico and so on, a new development needs to consider X$ oil to make it profitable, and guarantee return of investment in a certain time, etc.

Then, comes fracking. I dont know about the technology, but i know is cheap, its harmful for the environment and it gives USA the ability to get oil from they couldnt before, increasing their oil reserves potentially to more what saudis have. In england fracking its more dificult bc of the environment and the affected communities are against it. In USA there is more space to do it without anyone giving a $hit.

China devaluation only tells you, china economy isnt good. Either they are not selling enough 1$ crap anymore, or they are eating less, whatever, it just means their consumption of resources is also slowing, that includes OIL.

So, less consumption, more oil available, equals less price.

At the beggining I thought it was a USA-saudi vs. Russia thing
Then I realize USA Have their own plan and dont give a fck about saudis
Now it just looks is all vs. All economic war

And economic war, leads to bullet war

norsk

If this is even partly correct I don't think this bullet can be dodged regardless of the Dubai PR machine...

stock bubble bursting, not correcting - Business Insider

DXBtoDOH

"I’ve been predicting for many years that oil will eventually hit $10 to $20."

Sheeet will really hit the fan in the Gulf, no?

Read more: stock bubble bursting, not correcting - Business Insider

norsk

Be aware this guy doesn't really have the best track record with his predictions and regularly gets slated for it, but he isn't the only one predicting an end to the current bull stock market.