The Falling Rate of Oil Profits

[John Nada]

Oil prices have been dropping. The US is producing more oil from shale and fracking. OPEC isn't cutting production, in fact Saudi Arabia is slashing prices. Yet many oil producing countries can't afford to sell at low prices. (http://www.economist.com/news/international/21627642-america-and-its-friends-benefit-falling-oil-prices-its-most-strident-critics?zid=298&ah=0bc99f9da8f185b2964b6cef412227be)

What's behind this drop? What are the political implications?

[cyu]

When the House of Saud opened the spigot, there was initial speculation that the American administration leaned on them to do so, in order to hurt the Russian economy over the new Cold War.

Apparently now there are some who believe that the House of Saud sees a potential threat from shale oil, and is lowering prices to bankrupt that sector.

To me the whole thing serves as a reminder to never let yourself become a banana republic - that is, if your economy depends primary on one export (in this case oil), then your economy is very unstable. If prices fall, then your country may be in for disaster. For economies that currently depend on one primary export, I would recommend they use their income to diversify their economy - particularly into things their people consume (agriculture, for example).

[John Nada]

U.S. crude fell more than $1 on Monday, edging below $78 a barrel, and Brent crude also dropped with both reversing early gains as U.S. dollar strength outweighed worries about conflict in Libya and Ukraine.

The dollar rose 0.18 percent against a basket of currencies , regaining ground after dropping in European trade. Recent strength has made oil and other commodities priced in dollars more expensive for holders of other currencies, suppressing demand.

Persistent concerns about a global surplus of crude and slowing growth have pushed oil prices down nearly 30 percent since June.Source:http://www.reuters.com/article/2014/11/10/markets-oil-idUSL3N0T029120141110

It's kind of fucked up that someone might hope a war gets worse to make money.

[RedMaterialist]

Source:http://www.reuters.com/article/2014/11/10/markets-oil-idUSL3N0T029120141110

It's kind of fucked up that someone might hope a war gets worse to make money.

Well, capitalists have been making war for centuries to make money. The difference this time is that the big players and some of the smaller ones have the bomb.

That leaves countries which can't defend themselves to become targets, like Venezuela, Libya, Iraq, Syria, etc.

[cyu]

It's kind of fucked up that someone might hope a war gets worse to make money.

As long as people worry about what will happen to their careers if they lose their job, then they will be either hawking their wares or hawking their wars.

http://i.imgur.com/Xbu0G.jpg.jpg

[Zhi]

[QUOTEWhat's behind this drop? What are the political implications?[/QUOTE]


Behind this drop is a basic idea of how economic forces determine price. And when those forces are wielded by undesirable elements such as the House of Al-Saud it can cause tremendous problems. As mentioned earlier on in this threat it is imperative that any country should not organise an entire society and economy and even culture on a very price sensitive commodity. Al-Saud know that if their economy contracts there will be a massive revolution, so they are doing it to remain the most competitive partner for the West in terms of energy.

Personally I think this epitomises the entire geo-politics of the entire Middle East and Gulf States and just how the dependence of oil on their par forces them to do absurd actions like this.

[Prof. Oblivion]

This doesn't really have anything to do with "the falling rate of profit" so I'm not sure why the thread would use such Marxian terminology. Saudis are tanking oil prices to gut the US shale oil industry, and it has a good chance of doing so given the nature of fracking well cycles. What's also interesting, though, is that this signals a major fracture in OPEC. Some have gone so far to say that this is the beginning of the end of OPEC. This is certainly not in the interests of the cartel as a whole.

[jullia]

I think this decision was only made to break russian economy.

It's better to have concurent and sell the oil to a high price, than haven't any concurent and sell to a lower price.
It's just a fake reason to hide the fact that american manages saoudia.

[cyu]

http://www.zerohedge.com/news/2014-10-10/why-oil-plunging-other-part-secret-deal-between-us-and-saudi-arabia

Kerry was merely doing Saudi Arabia's will "to extract a fresh U.S. commitment to beef up training for rebels fighting Assad, whose demise the Saudis still see as a top priority."

how exactly it was that Saudi Arabia would compensate the US for bombing the Assad infrastructure ... which is merely using "the oil weapon" to target the old slash new Cold War foe #1

To pressure Iran to limit its nuclear program, and to change Russia's position on Syria, Riyadh will sell oil below the average spot price in the Asian markets and North America, says Rashid Abanmy, President of the Saudi Arabia Oil Policies and Strategic Expectations Center.

[John Nada]

This doesn't really have anything to do with "the falling rate of profit" so I'm not sure why the thread would use such Marxian terminology. Saudis are tanking oil prices to gut the US shale oil industry, and it has a good chance of doing so given the nature of fracking well cycles. What's also interesting, though, is that this signals a major fracture in OPEC. Some have gone so far to say that this is the beginning of the end of OPEC. This is certainly not in the interests of the cartel as a whole.I wasn't being literal, a bit tongue in cheek. Actually it'd be very profitable for businesses that use petroleum products, like airlines.

[Vogel]

There are huge political implications. Europe and Russia have intertwined economies. If I am correct, Russia is an important market for Europe. Now Russia's buying power is severely hurt. So, that hurts Europe. In Europe, there is a big fight to keep their social democracy, but they are not doing well. Austerity is a major conflict. As European economies hurt more, more people will advocate for austerity because it just needs to be done to balance the budget, but not everyone will like that, and their will be more fighting against it.

Another possible avenue is that NATO won't be as strong as Europe weakens. That offsets the power balance in the world.
Of course this is conjecture but what is not is that global capitalism is hurting itself. As more regions become sluggish and slow, more people are hurt, the stronger our position gets.

[cyu]

more people will advocate for austerity because it just needs to be done to balance the budget


More like European banks are overloaded with toxic debt, and local capitalists are afraid that once the debts start unwinding, all the major banks will collapse. So instead of spending taxpayer money to keep people happy, capitalists want to spend that money to save capitalism - ie. put money back into the banks before they collapse.

Imagine if your country was run by a bunch of counterfeiters (which is basically what central banks have been reduced to these days). The counterfeiters print a lot of cash to spend - not just on social programs, but also military programs. This printed money is also used to fund propaganda programs that declare everything is fine and that you should trust in their monetary system. If these propaganda programs work (especially when developing countries are duped), then the cash can also be used to buy up raw materials and labor from developing economies in order to support the counterfeiters' empire.

What happens when the developing countries get sick of being targets of neocolonialism? They start to find ways to get around having to use the counterfeit money. The problem for the counterfeiters is that if nobody uses your cash, then it becomes worthless paper. Your banks, that are based on your counterfeit money, are doomed to failure. Thus even if you had austerity at home, you're just delaying the inevitable - your banks will collapse anyway. There really isn't anything the counterfeit empire can do once Third World economies stop using their money - the empire can no longer depend on their colonies to feed them - it will have to start feeding itself.

The problem with a financial capital based on counterfeiting is this: you have lots of rich people centered around the counterfeiters - ie. capitalists who consume a lot without producing anything tangibly useful. And you have lots of service jobs - these services jobs are targeted towards fulfilling the whims of the capitalists - they too don't produce much that's tangibly useful. In this money master and servicing slave economy, all the actual manufacturing has been outsourced to Third World nations. If the Third World nations switch to producing for themselves, instead of for the finance "capitals", then what remains in the financial "center" are basically a lot of useless jobs - yes, they too can feed themselves, but switching their economy into one that no longer requires colonial extraction cannot happen overnight - if the colonies shut off their supplies too quickly, the financial "center" will implode in chaos.

[Vogel]

I meant that part you quoted to be dumbed down, but holy cow, great analysis! Point is, falling oil prices hurt the worldwide economy much more than saving a couple extra dollars helps it, as it slows down investment in places like the stock market, and hurts many countries because their economies are very much dependent upon it, and other countries are dependent on the hurt countries as well.

[Dean]

More like European banks are overloaded with toxic debt, and local capitalists are afraid that once the debts start unwinding, all the major banks will collapse. So instead of spending taxpayer money to keep people happy, capitalists want to spend that money to save capitalism - ie. put money back into the banks before they collapse.

Imagine if your country was run by a bunch of counterfeiters (which is basically what central banks have been reduced to these days). The counterfeiters print a lot of cash to spend - not just on social programs, but also military programs. This printed money is also used to fund propaganda programs that declare everything is fine and that you should trust in their monetary system. If these propaganda programs work (especially when developing countries are duped), then the cash can also be used to buy up raw materials and labor from developing economies in order to support the counterfeiters' empire.

What happens when the developing countries get sick of being targets of neocolonialism? They start to find ways to get around having to use the counterfeit money. The problem for the counterfeiters is that if nobody uses your cash, then it becomes worthless paper. Your banks, that are based on your counterfeit money, are doomed to failure. Thus even if you had austerity at home, you're just delaying the inevitable - your banks will collapse anyway. There really isn't anything the counterfeit empire can do once Third World economies stop using their money - the empire can no longer depend on their colonies to feed them - it will have to start feeding itself.

The problem with a financial capital based on counterfeiting is this: you have lots of rich people centered around the counterfeiters - ie. capitalists who consume a lot without producing anything tangibly useful. And you have lots of service jobs - these services jobs are targeted towards fulfilling the whims of the capitalists - they too don't produce much that's tangibly useful. In this money master and servicing slave economy, all the actual manufacturing has been outsourced to Third World nations. If the Third World nations switch to producing for themselves, instead of for the finance "capitals", then what remains in the financial "center" are basically a lot of useless jobs - yes, they too can feed themselves, but switching their economy into one that no longer requires colonial extraction cannot happen overnight - if the colonies shut off their supplies too quickly, the financial "center" will implode in chaos.


There is some truth to this, but modern currencies are far stronger than the former gold standard and it is hard to honestly claim that they are of no value (or counterfeit) being that they are backed by a stronger, diversified holdings.

[cyu]

I would say paper currency vs gold is a false dichotomy. If the Republicans are bad, that doesn't automatically mean the Democrats are good.

Regardless of whether the rich hold vast amounts of paper currency or gold, it doesn't matter. If the colonial manufacturers stop using whatever medium of exchange that the "rich" use, and stop shipping supplies to the "financial centers", then the center will implode, regardless of what "wealth" they supposedly have.

The only way the center won't collapse is that instead of storing up vast amounts of soft or hard currency, they instead have a large store of food, energy, and other manufactured products. If they have that, then they can at least survive for a while until their supplies run out.

[Prof. Oblivion]

I wasn't being literal, a bit tongue in cheek. Actually it'd be very profitable for businesses that use petroleum products, like airlines.

Definitely. Every asset has conflicting claims.


There are huge political implications. Europe and Russia have intertwined economies. If I am correct, Russia is an important market for Europe. Now Russia's buying power is severely hurt. So, that hurts Europe. In Europe, there is a big fight to keep their social democracy, but they are not doing well. Austerity is a major conflict. As European economies hurt more, more people will advocate for austerity because it just needs to be done to balance the budget, but not everyone will like that, and their will be more fighting against it.

Another possible avenue is that NATO won't be as strong as Europe weakens. That offsets the power balance in the world.
Of course this is conjecture but what is not is that global capitalism is hurting itself. As more regions become sluggish and slow, more people are hurt, the stronger our position gets.

What?

[cyu]

http://www.zerohedge.com/news/2015-01-10/oil-price-blowback-putin-creating-new-world-order

Barack Obama: If you’ll recall, their (Russia) economy was already contracting even before oil collapsed. And part of our rationale was that the only thing keeping that economy afloat was the price of oil. And if we were applying sanction pressure, over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — that they’d have enormous difficulty managing it.”

Am I mistaken or did Obama just admit that he wanted “disruptions” in the “price of oil” because he figured Putin would have “enormous difficulty managing it”?

Isn’t that the same as saying that it was all part of Washington’s plan; that plunging prices were just the icing on the cake for their asymmetrical attack on the Russian economy?