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WHEN FILLING UP your car at the petrol station you may have noticed you are getting more for you buck.
In a fall, rarely seen in the market, oil has lost more than half its value since June and yesterday the price of Brent oil sank under $50 per barrel for the first time since 2009.
But why is this happening all of a sudden and what does it mean for you and the wider economies of the world?
Let’s take a look.
OPEC’s decision
One reason for prices falling is due to the stance taken by OPEC (Organisation of the Petroleum Exporting Countries) – the intergovernmental organisation dedicated to stability in and shared control of the petroleum (basically, they control the supply allowed) – who decided not to cut its daily production target on 27 November, which resulted in prices plunging to post their steepest one day fall since 2011.
OPEC opted to keep its oil output ceiling at 30 million barrels per day despite ample global supplies.
Analysts said the move was aimed at stifling competition from new market players with higher costs — in particular US shale oil producers.
Former Wells Fargo Chairman and CEO Richard Kovacevich told CNBC on Tuesday that the refusal by OPEC to cut production in the face of prices plunging shows the cartel is looking to put a lid on the US fracking boom. No matter what the reason, this is one of the contributory factors to falling prices.
However, OPEC kingpin Saudi Arabia blamed weak global economic growth and said it will stick to its guns on production policy.
“The move below $50 shows how momentum is everything here,” CMC Markets analyst Michael Hewson told AFP.
“With no sign that OPEC will do anything about over-production, it seems likely that we could well see further declines towards $40 in the coming weeks — particularly given that demand shows no signs of picking up.”
Weak demand
While there is an oversupply of oil, this is twinned with weak demand.
Weak growth and weak demand in China and Europe are likely to continue to be the main drivers as the battle for market share intensifies.
“We’ll probably still see sharp swings in the interim but the direction of travel seems clear, unless OPEC acts,” said Hewson.
Eurozone stability
Implications of a fall in oil prices are big for both the markets and the economies of oil producing nations. The stability of Russia’s economy, which is extremely reliant on oil, is already feeling the effects, with its ruble hitting the floor, while Venezuela are praying the price won’t fall any further.
The markets are also showing concern for the stability of the eurozone, with fears Greece will exit the Eurpope, making Europeans get less buck for their euro and the euro hitting an almost nine-year low against the US dollar.
The euro is currently at its lowest level with the dollar since about 2009.
This has pushed consumer prices in the eurozone down, falling 0.2 % in December, entering negative territory for the first time since the depths of the financial crisis in 2009, EU data showed today.
The drop, brought on by plummeting oil prices, is the first concrete sign of much-feared deflation in the now 19 nation currency zone. Deflation is officially defined by prices falling over a longer period.
Why have petrol prices I am paying for not fallen more?
One would think that the immediate impact of falling oil prices is that petrol prices will follow suit. They do, to a certain degree, but it all depends on what country you live in, as remember, a lot of the price you are paying for at the filling station is tax in the form of VAT.
In Ireland, when both excise duty and VAT are added together, it amounts to 59% of the price of petrol. This is down from 61% in 2004, according the the Department of Finance.
This is why we don’t see quite a big fall-off as in other countries like the US who tax gas at a low rate.
Where is Ireland in all this?
Bloomberg reports that while oil-producing nations may be suffering, consuming countries (that would be us) are taking advantage of low petrol prices. Here’s the impact on a country’s GDP (including Ireland) with a barrel of oil costing $40 per barrel:
When all these factors are combined together, it has resulted in a fall in oil prices, and while it is positive for us, the consumer when we are filling up the tank, it will lead to bumps in the road over next few months for the world economy.
How low can it go?
Business Insider states that Saudi Arabia produces oil at less than $10 per barrel in extraction and investment costs. The oil price was in this region as recently as the late 1990s.
A late 1990s dollar is worth more than a 2010 dollar due to inflation, but in terms of the costs involved, there’s no impossibility to $20 oil. That might not be likely (and very few people are predicting it), but there’s no iron law stopping oil prices from falling much, much further.
Additional reporting AFP, Business Insider and Associated Press.
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Hse and the government are going to loose all credibility very shortly unless they stay being honest with people. I personally know of 4 people who all had every symptom but yet tested negative. They covered up results of smear test where people were going to die and this seems to be history repeating itself. There was 100 test carried out in Pàirc Ui Chaoimh over the last two weeks due to shortage of reagent. If there is a world wide shortage of this chemical come out and say it besides rabbiting on about what a great job is being done..
@John O Brien: The problem is the symptoms are very similar to the flu. Just because Covid 19 is around doesn’t mean all the other normal viruses are gone. They probably genuinely just had the flu.
@John O Brien: yes, the only reason they bolster their actions is to justify their big fat salaries. I don’t believe they give a damn. That man should have been fired after the cervical smear disgrace.
@John O Brien: there actually was another virus similar going around in March. Like the 4 people you know I had all the symptoms of the virus and tested negative. I have an underlying lung condition and although my breathing was affected I felt if I had the corona virus my breathing would have been a lot worse. I believe I didn’t have the corona virus. I am not saying the people you know didn’t have that just my experience.
@John O Brien: The haven’t been honest for years hard to see them change now they love u turns /loopholes/using media spin
@John O Brien: scientist working with uk government interviewed by bbc on Sunday morning suggested a fairly high level of false negative results from the current swab tests. No test is 100% accurate and a brand new one is bound to have had less testing before being rolled out. It’s the best we can do at the moment. I’m just getting over a presumptive diagnosis of covid19 and 14 days of self isolation but as not in priority group I wasn’t tested.
I sincerely appreciate the efforts made by health staff and workers. But does anyone else feel the HSE was failing long before this, so news articles like this are not surprising. It’ll be a lot higher than this is people were able to get tested.
As a nation we were informed testing would be done in Ireland. Not in other countries.
@Madra: The front line workers are bullet proof now and forever after what we have seen over the last few weeks. There is simply no doubting that we have some of the best nurses, doctors, porters etc in the world.
The problem is and always was in the layers of management of the HSE and the CS. With no accountability in our management systems it means nothing will change. If the Covid 19 crisis can’t change our health care system, then nothing will.
@David Corrigan: the HSE is a joke, nothing has changed in years. I’d say they spend more time and effort planning how to deny and cover up things than doing actual health planning. As you say, never waste a good crisis. After this is the perfect time for radical reform.
@The Guru: They are writing checks every week in every court house in the country to make “mistakes” go away.
@David Corrigan: I hope it does change the system as it is too top heavy. Executive in my opinion is not adequate, management is what we need. Its supposed to be a people centred service.
@Ruth Mannion: I fully agree with you Ruth. If this crisis does not highlight the problems with management then nothing will.
@Madra: One should hardly be surprised, the HSE is a dis functional organisation, Reid is fairly new in the top job , He is probably learning fast that hundred beneath him are useless , but what can he do at this time ? He is stuck with them. The HSE have a real habit of lying through their teeth for years, they would have known that people were sick and dying that were not in Hospital settings or Nursing Homes- but they were happy to let that information slip past. I don’t want to criticise Harris, but He should now know the type of Organisation this is , and the number of inept, lazy, useless individuals that ramble around doing nothing. Just look at All the poor decisions that were made down the years. God save the frontliners that are putting their lives on the line to save the sick.
@Eugene Comaskey: Harris knows alright Eugene. They all know that the HSE is a disaster but they can’t or won’t do a thing about it. Imagine having such a prestigious job and title as Minister for Health and have absolutely no influence or power to change anything in the organisations under your department?
@The Guru: The Whole Public Service at the top gives very poor service., BUT, the HSE takes the biscuit, there are people in there that started in Civil Service jobs just out of 2nd Level , they have juked and ducked their ways up the line by hanging of there for years and now are at or near the top. None of them would last a week in Private Sector – just remember ALL the bad decisions that were made down the Years, and cost the Taxpayers Billions, yes Billions, – and not one of them were made examples of. The HSE is an Institution out of control, far too fat, needs to be slimmed and trimmed back . They are really well paid, all of them, and not too many of them have 3 Rd Level Ed. Mostly Pen pushers with a few sheets of paper under their arms.
@Madra: too much red tape, bureaucracy and covering their own backsides if things go wrong. The only thing is the Government will never try to hold them to account as they would have to hold themselves to account for their own failing then also. It’s a shame the HSE is so badly run. I have seen first hand the amazing work that the doctors and nurses do. It’s terrible that they are hamstrung by poor management.
@Ruth Mannion: They are Public Service, — is, Servants of the Public — , They are there to help and assist the Public, not to hinder them, and send back forms for more information , and just say, ” you are not entitled to that” . A very big issue with them is incompetence , laziness , and no caring attitude. Of course, they are grossly overpaid, huge expenses,- and a law onto themselves really. Again they need to remember, they are The Servants of the Public, not their Masters.
The fuzzy fuzzy love in about how great we all are and great the HSE are and how great Tony is and Leo doing a shift a week in hospital as a doctor lets all go out and clap tonight for someone else and we can all fell great about ourselves again. But they will be back in government again and this will pass but we will be stuck with FG / FF for years again. I think I’d prefer the virus.
@David Smith: but David, if FFG weren’t in power, what would you complain about then ?
@David Smith: it could be worse, you could have had the Shinners at the wheel.
@Colin Ahern: Thing is Colin I am not a complainer I rarely post anything or whinge about my lot in life I’m quite a content person. I’m just stating the obvious reality. But let’s wait a while and see the rubbish we are being fed by our current government. Any party that props this FF/FG coalition will be destroyed in the next election. As the greens found out before.
@GrumpyAulFella: we have no proof they would have done any better or worse. Sinn Fein wanted St Patrick’s festivities cancelled long before FG did. Cancelling them earlier could have led to less tourists coming.
Up to 100 people (probably more) told they tested negative so continued on most likely without the protective face masks etc required to stop the spread , went for a walk/cycle daily and a weekly shop and spread the virus to others thinking they were fine , then the phone rings , ah sorry about that there , you actually do have Covid-19 , what a f-up !
Yeah and died ‘with’ and ‘of’ are completely different meanings too…. Seems every death, related to coronavirus or not seems to be counted as a covid death.
Given their performances to date how anyone has any faith in varadker , Harris or the HSE to manage this crisis is beyond me.
I posted these concerns over many articles over many weeks now and have been vilified for calling into question Saints Varadker, Harris and co.
They cut corners when ordering the PPE as they could get in cheaper in China , therefore putting a cost as a priority over the proper protection of medical staff and now this .
From a political point of view this was the golden egg landed in FG’s lap to paint over the many gaffs they made in while in government and the opportunity to claw back some of the ground lost to Sinn Fein, but they even f****d this up aswell.
@Dannys Dentures: “They cut corners when ordering the PPE as they could get in cheaper in China , therefore putting a cost as a priority over the proper protection of medical staff and now this .”
Nope, they purchased off of the country that had the capabilities to manufacture materials quickly, given that the entire world is competing for PPE at the moment.
You’re “vilified” for intentionally misrepresenting the situation, not for questioning decision making.
@Gerard Anthony McBride: incorrect, this is available within Europe but at 3 times the cost .
When they ordered the PPE other countries , Holland , Australia, Denmark had reported issues with Chinese produced Ppe , the very same issues reported here so it was flagged but they ignored it putting healthcare professionals at risk.
But would you except anything else from a government who publicly insulted these professionals who they now stand beside
@Dannys Dentures: No, they’re not available in the EU. Every EU country is reporting severe shortages l, and has been for the past month, this turned to China which had the capability to mass produce PPE.
If the government were that hellbent on penny-pinching, why would they introduce the covid-19 welfare payment, as opposed to just leaving it as is?
‘Less than a hundred’ received incorrect test results! They’re trying to play it down but this is truly shocking!! How about ‘less than a hundred attended the house party’ or ‘less than a hundred were in the pub’. It’s a disaster! How many more people have come into contact with these ‘cleared’ 100 since???
What we have is fantastic heathcare workers who are doing exceptional work in spite of the extreme circumstances of Covid 19 and public health system that has been underfunded and mismanaged.
The dedication and sacrifice of these medical workers has been used to deflect scrutiny from the roles of politicians, profiteers and careerists.
These nurses, doctors, cleaners, porters, etc were sent to the ‘frontline’ without enough of the necessary equipment and facilities to properly protect their own health or to save the lives of others.
The provision for residents and staff in nursing homes has been even worse.
The safety of our fantastic healthcare workers needs those responsible for the public health system and the specific response to Covid 19 to be willing and able to allow oversight of their decisions.
Any chance of saying how and when those affected might be told . This whole thing has been a disaster from the first case detected. Ireland was never ready to handle this.
You’re only as good as the moment you’re tested.
It’s like taking a breathalyser on the way to the pub
I presume there’s an intense testing program in nursing homes to protect our elderly?…anybody know?
@Spartacus Ireland: yes however , you would also have assumed that in 10/3/20 they wouldn’t have said there is no need for restrictions, so you never know
Experts are getting this right , just not our experts
Expect Intellectual Disability/Mental Health Facilites on the Agenda today
The state ensures the management of public services are in place to stop the provision of services.
Monies spent on services are essentially a drain on the profits of capitalists.
It’s the system worldwide.
‘Concern’ etc by lying senior bureaucrats is a PR sham.
My son waited 15 days for his result. Strange thing was that he had a phone call. Asked him how he was and had he still any symptoms. When he said he was feeling ok the caller said his test was negative. I thought that you got a text if negative and a call if positive??.
Nick Beams:
“Beams explained that warnings from medical experts of the need to prepare for a global pandemic had been ignored by capitalist governments for years. Instead, they had carried out cuts to public healthcare systems, in line with a program of austerity dictated by a financial oligarchy that has grown richer than any in history.
The refusal of governments to take the necessary measures to address the pandemic, Beams stated, was inextricably tied to the enormous growth of social inequality over the past several decades. Since the 2008 economic crisis, governments had bailed out the banks and financial institutions responsible, while escalating their assault on the social and democratic rights of the working class.
Governments were turning to even starker class-war measures in response to the pandemic, embarking upon unprecedented bailouts and stimulus packages for the corporations, while providing only a pittance to the millions of workers who have been laid-off overnight. Sections of the ruling elite were openly discussing the “benefits” of a disease that disproportionately kills the elderly, who are viewed by the financial elite as a drain on their potential profits.
The crisis, Beams noted, was intensifying the political radicalisation of the working class, which has been revealed in the upsurge of the class struggle over the past two years. “Capitalism has once again become a dirty word,” he said, while support for socialism is growing.
Beams explained that the unfolding crisis has discredited the “free market” ideology of the last 40 years. “Governments and pundits who had proclaimed the unfettered operations of the market as the solution to all ills were insisting on massive state intervention. It was clear, Beams said, that the crisis necessitated government deployment of resources and planning. The issue was which state would intervene and in whose class interests.”
@PV Nevin: brilliant comment PV, any link to that article? I’d be very interested in reading it.
It’s great to see more & more voices critical of the ‘small print’ in a lot of the policies being put in place & not falling for the standard PR line “they are doing a fantastic job”.
Leo, Mehole, Harris & ole Tony are a good example of this “fantastic job”, when in fact if you look into it, they most certainly are not.
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