Guess What Happened The Last Time The Price Of Oil Crashed Like This?

The facts are as such:

-Russia is wholly dependent on oil revenues for state income, this is why they justify having a flat 13% income tax rate.
-The Russian Federation requires oil to be at at least $100 per barrel in order to balance the budget.
-The majority of Russian bank debt is owed in dollar denominations, as are the vast majority of world corporate debts.
-The Ruble has lost 40% of its value against the Dollar since January.
-The drop in conversion rate means that;

Say a Russian petroleum company has a gross debt of 50 billion dollars at 5% per annum, if the ruble was trading at 30 dollars then it would pay [30 x (50 billion x 0.05)] = 75 billion rubles to service that debt each year.

Then assuming all profits remain the same for the company, if the ruble drops 40% in value so that 42 rubles now buys 1 dollar, then they suddenly have to pay 105 billion rubles to service the same debt at the same rate.

This is why Russia is in an awful situation, because if the Ruble keeps dropping as a result of weakening Oil Prices, then many of Russia's largest companies will be unable to remain profitable and service their internationally held dollar denominated debt. Its the Asian 97 financial crisis all over again, but this time the trigger is a weakening oil market and the victim will be Russia + anyone who holds a large stake in Russian debt, or who has large investments in Russia.

You can't just look at the dollar value for comparison. You have to look at the total percentage drop overall.

The reason oil hasn't dropped by over $40 more than once in history is because oil wasn't OVER $40 before that.

If you look at actual percentage drops, this sort of drop has happened quite a few times before, not accompanied by an economic crash.

Debunked.

a reply to: babybunnies

For Russia, this has not happened.

a reply to: rusblued9217

They have to buy dollars to pay down dollar debt,

Hence when their currency crashes due to worries about the state finances due to a weak oil market, the cost of servicing the debt goes up.

This is very simple.

Russian banks and any corporations for that matter other than state owned oil companies will not be selling oil for dollars, and hence will have to purchase Dollars with rubles whilst the rate crashes, it just gets worse and worse.

This is the risk any nation wholly dependent on the trade of one resource faces.

a reply to: BornAgainAlien

With all respect, considering the fact Russia is wholly dependent on oil sales for government revenue & oil is plummeting taking the Ruble with it, why would they cut off ties to the EU when they are more desperate than ever for the foreign currency reserves that trade brings in?

The seeds of social discontent are widely sown in Russia, it just takes a trigger.

J.P. Morgan analyst agrees, but expects it for `16 because most are hedged still for `15.

Junk bonds have financed the U.S. shale boom, and now the sharp drop in oil prices could lead to a massive wave of defaults on that high-yield debt.

Should oil prices fall below $65 per barrel and stay there for the next three years, Tarek Hamid, a high-yield energy analyst at J.P. Morgan Chase & Co., estimates that up to 40% of all energy junk bonds could default over the next several years.

Source

a reply to: rusblued9217

To force Europe to change it stance towards Russia.

a reply to: BornAgainAlien

Not denying what you say, just noting how badly Russia will be affected!

a reply to: rusblued9217

Russia will be bankrupt if it cuts off supplies to the EU, do you really think they want that?

Boo hoo.

Rich people aren't getting richer.

I am filling my car for $24.

If Obama was the Devil when gas was $4.50 a gallon, is he to be thanked when it's low?

Nope.

When it's low, its a sign that we're all going to die.

a reply to: rusblued9217

That`s why Russia probably hasn`t done it yet, but if needed they will strangle Europe before they will go down themselves.

a reply to: BornAgainAlien

Except Europe wont be strangled by Russia, because they have too much pride to go bankrupt again unless Russia wants to go back to the 1990's when it defaulted and was run by mafia.

originally posted by: AgentShillington
Boo hoo.

Rich people aren't getting richer.

I am filling my car for $24.

If Obama was the Devil when gas was $4.50 a gallon, is he to be thanked when it's low?

Nope.

When it's low, its a sign that we're all going to die.

I know you were being sarcastic. ...........but you could be absolutely correct.
This is a conspiracy theory site after all.

a reply to: rusblued9217

The EU economy can`t take the burden of having 30% gas reduction, it`s in very poor shape already.

a reply to: BornAgainAlien

I am weary about getting into the fray on this topic, but the economics being bandied around here is painful to read. There are a lot more factors involved in oil trading, and strategic reserves of both currency and oil than people seem to realize.

First of all, fracking condensate is very expensive to produce, and ranks just below the Canadian tar sands in terms of cost per barrel for extraction. That is the main reason  Ali al-Naimi, the oil minister of OPEC kingpin Saudi Arabia, warned his fellow OPEC members they must allow the price to drop to combat the U.S. shale boom, which is basically to ensure market share.

U.S. exports of lightly processed condensate, also known as light oil, started arriving in Asia in August and exports doubled to about 600,000 barrels in October. Royal Dutch Shell bought the last cargo coming to Asia, due to arrive at its Singapore refinery in December, but as a result of the price shifts no more cargoes are expected to head east any time soon. That means they will need to head to Europe, but the Shortage of tanker capacity (thanks to nations like Venezuela and and China) being booked up by Middle eastern and African supply will cause a backlog here in the US that will not clear up until it reaches market at a tremendous loss.

Lots of efforts have been made to force ship owners to convert new built vessels to Dual fuel/LNG under the guise of Ecological emissions program to ensure the demand for Fracking condensate, but it seems it is too little too late. Just today Norway’s Siem Offshore Inc. and Rem Offshore ASA lost a contract to work for Exxon’s joint venture with Rosnef to work in the Russian arctic, which hammered their markets. This is expected to precede the loss of Exxon’s contract to service the Russian arctic reserve. This means, Russia is signalling it is planning on cutting off the US ability to profit from their oil reserves.

People are being told that Russia is losing in this scenario. I am really not so sure. It is the mantra of all the mainstream market rags like Bloomberg, but these are the same sources that keep touting we are in an economic recovery, that quantitative easing was a good idea, and that the US dollar in forever. There is always the possibility that these measures make Russia stronger. The Russian billionaires that are “exposed”, have already been warned by Putin when sanctions were first considered that they needed to prepare for the blowback and reduce their exposure. They seem to have shown that they are willing to see their US/Euro holdings devalued as long as they are compensated in Ruan/Ruble futures. Russia and China have also been divesting themselves of the US dollar holdings, especially bonds. It is also known that they are converting their US cash reserves to buy tangible gold. That is an important factor. Thanks to US quantitative easing, and both dollar and metal market manipulation, physical gold is valued at less than the actual average extraction cost of 1600 USD per ounce. So we have the Chinese converting their massive USD currency reserves into Physical gold, land holdings globally, and they are also building a huge strategic oil bank that they are stockpiling by paying off Russian dollar debt for oil with what they feel are worthless US dollars. Essentially, the Ruble and the Ruan are going to be a gold backed currency, despite being downgraded by a rapidly inflating US fiat Currency. It all becomes moot when the dollar tanks, and these moves are making it more likely.

This is far messier than people realize. Yeah, it is cheaper to fill your car, but these is a very real war going on between the elites, and soon they are going to start throwing us into the mix

AX
FTNWO

originally posted by: grey580
a reply to: BornAgainAlien


The article is not taking into account that the United States is producing almost as much oil as Saudi Arabia is.

Thanks to fracking.

Oil is dropping because there is an abundant supply of it.

And I'll throw this out there. It might also be a ploy weaken Russia and their oil market. Others can chime in. But I think that Russia needs to be in a certain price per barrel range to make a profit.

Russia's Gazprom has the lowest production costs per barrel at $4.00. That said oil at less than $90.00 per barrel hurts Russia in a big way. In the short term it hurts Russia big time, but it will cause them to find other Asian markets and so in the long term it will strengthen the Ruble and ensure Russias independence from Western influence.

Russia is one of the most powerful nations on the planet and they will adapt and overcome. The action will just strengthen Russia and ensure America will supply the EU's gas soon.

Sounds like a good ole fashion butt raping to me! Drive Russia out of the EU gas market, so that our oil and gas reserves can be whored out to Europe. Inflation is a tax on the people of a nation that requires no legislation, and with the falling prices it's pretty clear to see who really holds sway over oil prices!

Personally I think some public lynching's are in order, but that's never going to happen in this joke of a democracy.

originally posted by: BornAgainAlien

Guess What Happened The Last Time The Price Of Oil Crashed Like This?

There has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months. The last time this happened was during the second half of 2008, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months.

GFC started in 2007...............

originally posted by: Xeven

originally posted by: ItCameFromOuterSpace
a reply to: BornAgainAlien

Gas prices predicted to drop below $2.00 in some places.
link

In the US this should stimulate the economy and lower prices on some stuff due to lower fuel prices. Poor and middle class will have extra money to spend on other things. If this goes long enough it might even produce jobs.

Just gonna throw this out there... I work for a gas station. I've watched gas drop from mid-$3/gal in August, down to $2.49 as of 2 weeks ago. Diesel fuel, which would actually affect fuel cost for transportation of goods, has only dropped around .20-.30 cents/gal in the same time frame.

wow, I really wish I could star that more.

very well thought out and concise.

I think you nailed it
.a reply to: AlphaExray