Sunday, December 21, 2014

What Happens When Oil Prices Fall - Views, Discussions and Questions From Fellow Happionaires

Always nice to ready your emails, posts and comments to our earlier post, What Happens When Oil Prices Fall?  I thought for the benefit for everyone, instead of replying to the comments in the comments section or by email, will simply reply via this post. This way we can address most questions! 

So here are some of them: 

Pratyush said...
Thanks Yogesh for your insight.I always find your insights very grounded , easy to understand and phenomenally useful.

I see that fall in the price of oil has a significant impact in reducing transport and other business costs. So its a good news for India ( or any oil importing countries) and possibly a not so good news for oil exporters..
In theory, the fall in oil prices could lead to higher spending on other goods and services and add to real GDP as it would lead to fall in cost of living.

I am bullish on certain sectors as it relates to consumer spending.

I am eternal positive human being and bring lot of positive aspect into my investment....Thanks again for your insight...Would you agree with above line of thinking?

With Gratitude and Respect
Pratyush

Thanks for the kind words and the genuine warmth and love Pratyush, am glad it is easy to understand and you find the views useful. 
As a person I too think in very simple and easy terms. I'm glad to see your positive thinking and do like it, I share it. What we need to ask is that how much of reduced oil prices will reflect on the ground? 
There are certain benefits, reduced transport costs, more money in the hands of consumers, but how much would people really spend more because of the same?
 If you see commodity prices have been falling in the recent years - if you see China has been slowing down. Iron Ore prices have come down, oil is simply following the trend.
With equal Gratitude and Respect! 

Dr. Chetali R.Samant (Bhat) said...
hi Yogesh

Nice, thought provoking article.

However, i have a Question -The negative impact on Indian (might be a large on Goan) Economy might be less due to Russian Tourists -isnt it ?
Besides Indian/other tourists might be filling the demand gap.

I feel the overall impact of Oil might be +ve for Indian economy more than negative. However, if the low prices continue for a long time .. then it might impact the indians working in gulf countries .

It might improve the financial health of Oil companies like BPCL, HPCL etc ?

Regards
Dr. Chetali Samant

Hi Dr. Chetali,
Yes that is true, others will eventually fill in the gap - they will discover new people to come. Economies and business are creative and always will strive to find new consumers. Maybe someone can find an opportunity to tie up with Goan resorts or for that matter resorts in Maldives which received a lot of Russian tourists and find new customers for them? New Indian customers or others benefited by falling oil prices? 
Yes you are right, the net effect is positive, but the positive effect is not as exaggerated as many people think it is. Yes it would be a good chance for the government to remove all subsidies now and should benefit oil companies, however what we need to see is have the markets already worked out the positives into the stock prices of Oil Companies? 
Warm regards,

Hello Yogesh,
Nice article.But can you explain why the crude is crashing?Regards,Sajal Hajra


Hello Sajal,
That is a very interesting question - there are several reasons. But to simplify things is that demand has reduced relative to supply. The global economy has slowed in some places - China has slowed down, in other places it has become more efficient and thus reduced dependence on energy, new sources of energy are also coming up. America is less dependent on foreign oil and has become one of the world's largest producers, Saudi Arabia has not reduced production, as it costs them barely $6-7 to produce a barrel, if they cut supply, the benefits would go to people they might not be too fond off - the Russians, Iranians.  If it cost you $6-7 to produce oil, am sure you too would continue producing and selling it for $ 60! 
Warm regards,

Also I thank all those in the Paper trade who wrote to me, I will be using your knowledge and experience! I get to learn a lot from all of you! 
Keep smiling, learning and sharing ideas.
Have fun!
Yogesh Chabria 

What happens when you go Private on Twitter? It is quite interesting. 

2 comments:

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Ravi P said...

Nice article, Yogesh. It is always refreshing to see how demand/ supply in one area impact other aspects of our lives.

I was wondering how fall in Oil prices impact Gold prices?

View 1 - With US self-supported for Oil, and Oil prices falling low, the dollar is currently strengthened. People are bullish on USD, and thereby we see Gold prices stuck in a range.

View 2 - Mid-eastern countries will invest further in Gold due to high inflation. Referring to import prices being higher as they will have to pay more to import due to weaker oil.

Overall, the gold story is intact and I am extremely bullish on it over a long period. However, I keep hearing views from everyone that gold is going to fall back to 2010/11 levels - around Rs. 18,000 per 10 gm, due to oil price fall.

What are your thoughts?

Thanks
Ravi