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Falling oil prices: Who are the winners and losers?By Tim Bowler Business reporter, BBC News19 January 2015From the section Business06413500Image caption A woman walks past a board listing currency exchange rates in MoscowGlobal oil prices have fallen sharply over the past seven months, leading to significant revenue shortfalls in many energy exporting nations, while consumers in many importing countries are likely to have to pay less to heat their homes or drive their cars.From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 a barrel. But since June prices have more than halved.?Brent crude oil?has now dipped?below $50 a barrel?for the first time since May 2009 and?US crude?is down to below $48 a barrel.The reasons for this change are twofold - weak demand in many countries due to insipid economic growth, coupled with surging US production.Added to this is the fact that the oil cartel Opec is?determined not to cut production?as a way to prop up prices.So who are some of the winners and losers?043624500Russia: Propping up the roubleImage captionThe falling rouble and plunging oil revenue are some of President Putin's biggest challengesRussia is one of the world's largest oil producers, and its?dramatic interest rate hike to 17%?in support of its?troubled rouble?underscores how heavily its economy depends on energy revenues, with oil and gas accounting for 70% of export incomes.Russia loses about $2bn in revenues for every dollar fall in the oil price, and the World Bank has warned that Russia's economy would shrink by at least 0.7% in 2015 if oil prices do not recover.Despite this, Russia has confirmed it will not cut production to shore up oil prices."If we cut, the importer countries will increase their production and this will mean a loss of our niche market," said Energy Minister Alexander Novak.Falling oil prices, coupled with western sanctions over Russia's support for separatists in eastern Ukraine have hit the country hard.The government has cut its growth forecast for 2015, predicting that the economy will sink into recession.Former finance minister, Alexei Kudrin, said the currency's fall was not just a reaction to lower oil prices and western sanctions, "but also [a show of] distrust to the economic policies of the government".Given the pressures facing Moscow now, some economists expect further measures to shore up the currency."We think capital controls as a policy measure cannot be off the table now," said Luis Costa, a senior analyst at Citi.012827000Image caption Russia’s economy is forecast to fall into recession in 2015 if oil prices do not regain groundWhile President Putin is not using the word "crisis", Prime Minister Dmitry Medvedev has been more forthright on Russia's economic problems."Frankly, we, strictly speaking, have not fully recovered from the crisis of 2008," he said in a recent interview.Because of the twin impact of falling oil prices and sanctions, he said the government had had to cut spending. "We had to abandon a number of programmes and make certain sacrifices."Russia's interest rate rise may also bring its own problems, as high rates can choke economic growth by making it harder for businesses to borrow and spend.Venezuela: No subsidy cuts0254000Image caption Venezuela saw mass anti-government protests earlier this yearVenezuela is one of the world's largest oil exporters, but thanks to economic mismanagement it was already finding it difficult to pay its way even before the oil price started falling.Inflation is running at about 60% and the economy is teetering on the brink of recession. The need for spending cuts is clear, but the government faces difficult choices.The country already has some of the world's cheapest petrol prices - fuel subsidies cost Caracas about $12.5bn a year - but President Maduro has ruled out subsidy cuts and higher petrol prices."I've considered as head of state, that the moment has not arrived," he said. "There's no rush, we're not going to throw more gasoline on the fire that already exists with speculation and induced inflation."The government's caution is understandable. A petrol price rise in 1989 saw widespread riots that left hundreds dead.054800500Saudi Arabia: Price versus market shareImage captionSaudi Arabia is not expected to cut production to prop up oil prices in the short termSaudi Arabia, the world's largest oil exporter and Opec's most influential member, could support global oil prices by cutting back its own production, but there is little sign it wants to do this.There could be two reasons - to try to instil some discipline among fellow Opec oil producers, and perhaps to put the US's burgeoning shale oil and gas industry under pressure.Although Saudi Arabia needs oil prices to be around $85 in the longer term, it has deep pockets with a reserve fund of some $700bn - so can withstand lower prices for some time."In terms of production and pricing of oil by Middle East producers, they are beginning to recognise the challenge of US production," says Robin Mills, Manaar Energy's head of consulting.If a period of lower prices were to force some higher cost producers to shut down, then Riyadh might hope to pick up market share in the longer run.However, there is also recent history behind Riyadh's unwillingness to cut production. In the 1980s the country did cut production significantly in a bid to boost prices, but it had little effect and it also badly affected the Saudi economy.Opec: Not all are equal09271000Image caption Some Opec members need oil to be above $120 a barrel to avoid hard spending choicesAlongside Saudi Arabia, Gulf producers such as the United Arab Emirates and Kuwait have also amassed considerable foreign currency reserves, which means that they could run deficits for several years if necessary.Other Opec members such as Iran, Iraq and Nigeria, with greater domestic budgetary demands because of their large population sizes in relation to their oil revenues, have less room for manoeuvre.0000They have combined foreign currency reserves of less than $200bn, and are already under pressure from increased US competition.Nigeria, which is Africa's biggest oil producer, has seen growth in the rest of its economy but despite this it remains heavily oil-dependent. Energy sales account for up to 80% of all government revenue and more than 90% of the country's exports.The war in Syria and Iraq has also seen Isis, or Islamic State, capturing oil wells. It is estimated it is making about $3m a day through black market sales - and undercutting market prices by selling at a significant discount - around $30-60 a barrel.United States: Fracking boom12704889500Image caption US domestic oil production has boomed due to fracking"The growth of oil production in North America, particularly in the US, has been staggering," says Columbia University's Jason Bordoff.Speaking to BBC World Service's World Business Report, he said that?US oil production levels were at their highest in almost 30 years.It has been this growth in US energy production, where gas and oil is extracted from shale formations using hydraulic fracturing or fracking, that has been one of the main drivers of lower oil prices."Shale has essentially severed the linkage between geopolitical turmoil in the Middle East, and oil price and equities," says Seth Kleinman, head of energy strategy at Citi.Even though many US shale oil producers have far higher costs than conventional rivals, many need to carry on pumping to generate at least some revenue stream to pay off debts and other costs.5461017081500Europe and Asia: Mixed blessingsImage caption Growth in the European Union remains weakWith Europe's flagging economies characterised by low inflation and weak growth, any benefits of lower prices would be welcomed by beleaguered governments.A 10% fall in oil prices should lead to a 0.1% increase in economic output, say some. In general consumers benefit through lower energy prices, but eventually low oil prices do erode the conditions that brought them about.China, which is set to become the largest net importer of oil, should gain from falling prices. However, lower oil prices won't fully offset the far wider effects of a slowing economy.Japan imports nearly all of the oil it uses. But lower prices are a mixed blessing because high energy prices had helped to push inflation higher, which has been a key part of Japanese Prime Minister Shinzo Abe's growth strategy to combat deflation.India imports 75% of its oil, and analysts say falling oil prices will ease its current account deficit. At the same time, the cost of India's fuel subsidies could fall by $2.5bn this year - but only if oil prices stay low. Crude reckoning: what will oil price slump mean for the global economy?Oil hits new low of less than $32 per barrel and could plunge further, increasing pressure on US and Middle East producers-749301143000The present oil rout is worse than any other since 1970?Photo: APBy?Peter Spence,?Economics Correspondent7:04PM GMT 11 Jan 2016The current oil rout is now worse than any since 1970, with the price of Brent crude slumping from $115 a barrel in the summer of 2014 to an 11-year low below $32.The slump has roiled global financial markets and oil exporters. But for many of us, cheaper oil is a good thing. However, the strain of cheap crude is beginning to mount. Who will the winners and losers be if oil prices stay low?Why have oil prices fallen?Commodity prices, like most others, are determined by two factors:?supply and demand. The longer-term oil price sell-off has been led by a rise in supply, as US production has picked up with the advent of shale gas investment on a large scale.More recently, the failure of oil cartel Opec last month to agree to new production ceilings signalled that exporters still aren’t sure how to deal with lower prices.Meanwhile, crude demand has faltered as China, the world’s second largest economy, pivots away from energy-intensive industrial growth, towards a more consumption-led model of development. That has come amid signs of weakness in emerging markets, indicating that demand for oil will be lower.Will crude prices keep falling?A number of potential catalysts could drive oil yet lower. Some analysts have said that $20 a barrel is now not out of the question, or even below that.Many China watchers believe that Beijing's economic slowdown could spark a further weakening in the oil price. Recent warm weather, along with forecasts of more to come, should also mean there is less demand for oil.Oil supply may also be set to rise, as Iran attempts to hit its targets, and US shale is resilient. Even if US shale production does not grow, but simply avoids decline, that would be negative for oil. A combination of these factors could mean that oil prices fall further.Who has suffered with prices so low?Many oil exporters have already been put under pressure by the slump in prices. Among them, Russia and Latin American countries such as Venezuela, Colombia and Ecuador.Vladimir Putin, Russia’s president,?last month insisted that the country’s economic crisis had peaked, despite being “hugely dependent” on global factors such as the oil price.Analysts have criticised Moscow’s officials for failing to diversify the economy, which does little else than “facilitate rent extraction”.07556500Vladimir Putin said that the worst of the crisis was overGulf states have also come under strain, with?Saudi Arabia unveiling a record budget deficit of 367bn riyals (?67bn)?for last year.Bank of America Merrill Lynch economists said the oil price slump meant that “the era of [Saudi’s] material overspending is likely firmly behind us”.Analysts at Deutsche Bank said that “history shows the potential for geopolitical tensions in the Middle East to push oil prices higher”, and the possibility of instability in the region could interrupt production. Low prices themselves could provide a catalyst, as cheap oil undermines the outlook of Middle East economies.How much pain is in store for the developed world?High-profile victims to date have all been in emerging markets. While cheap oil has been painful for some sectors in developed economies, this has been counteracted by the benefits reaped by consumers. Low oil prices have kept inflation close to zero, acting as an effective tax cut for many.However, analysts have warned that prices could now be approaching an inflection point for the US economy, where many oil producers could be at risk of default. Danske Bank described crude price declines as a “risk to the US economy”, as low prices put pressure on the oil sector.While oil investment makes up just 1pc of US GDP, declines last year dragged GDP down 0.4 percentage points. Analysts at the Danish bank believe weak oil could pull down US GDP again this year.2625725254000Bankruptcies in the sector in the second half of last year exceeded the levels witnessed during the financial crisis, according to Bank of America, as low prices have resulted in a “huge reduction” in investment.While the negative impacts of oil arrive immediately, the positive effects take longer to materialise. While oil might act as a depressant for now, it will become a stimulant later.For eurozone countries, the outlook is much rosier. The German bank believes that the renewed oil sell-off could add to growth for euro area economies across 2016. It looks like cheap oil will help the currency bloc yet again.Ewart: Uncertainty abounds as Canada's energy sector enters?2016STEPHEN EWART, CALGARY HERALDMore from Stephen Ewart, Calgary HeraldPublished on: January 1, 2016 | Last Updated: January 1, 2016 11:29 AM MSTAbout the only certainty for the Canadian oil and gas sector is that the number of known unknowns abounds.Uncertainty has always been a hallmark?of the oil industry and?the current list of variables is led by particularly volatile crude?prices, but also includes the review of oil and gas royalties?in Alberta, Ottawa’s plan to roll out?a national framework on climate change along with implementation of Alberta’s newly released GHG?strategy, and the industry’s?enduring concern over access to foreign markets.?It was a?second straight year of steep oil price declines in 2015 as crude?slumped to its?lowest levels since the global financial crisis in 2009 and added?clarity may simply?reaffirm the bleak?outlook for the industry entering?2016.With Canadian producers and drillers?facing what’s been?called?“one of the most difficult economic times in a generation” significant change is?needed — and already?underway as the?job losses will attest — to address the fundamentals of doing business?in a high-cost basin?in?a low-price environment but there’s tremendous?uncertainty over how?companies?will react and adapt.?Investment firm ARC Financial has calculated revenues for the oil and gas industry in Canada?will be $91 billion in?2015 —?or almost 40 per cent less than?a year earlier.?Bankruptcies are already occurring in?the especially grim?junior sector.?Capital spending by oil and gas producers in Canada plunged?from $81 billion in 2014 to $45 billion in 2015 as West Texas Intermediate crude declined by?more than 30 per cent from January and closed 2015?at US$37.04 a?barrel. The International Energy Agency conceded in December “there are very few reasons” to expect a price recovery in 2016.The main energy index on the Toronto Stock Exchange similarly fell by?almost 30 per cent in 2015.During the year, the North American benchmark crude averaged US$48.76 a?barrel; or only slightly more than the price WTI has averaged, in today’s dollars,?over the previous 50 years. However, after?three years of averaging more than US$90 a?barrel, WTI hit a?recent peak at?$107 in June 2014 and has lost approximately 70 per cent of its value since then.Influential U.S. financial institutions?Citigroup and Goldman Sachs have warned crude could retreat?into the $20s if the persistent?global supply glut increases while Morgan Stanley said in its recent outlook for 2016?that “headwinds growing for 2016 oil” as production continues to defy lower prices and falling rig counts.?The U.S. Energy Information Agency predicts WTI will?average $51 a?barrel in 2016 but?acknowledges that’s?“subject to significant uncertainties as the oil market moves toward balance … prices could continue to experience periods of heightened volatility.” In Canada,?Scotiabank has warned?it expects WTI to?average “no more than $40-45 a?barrel” in?2016.The new year will be rife with challenges as?a number of key developments occur.?Alberta Premier Rachel Notley delayed the royalty review report scheduled for December to early?January?to ensure “we don’t kick something out the door that’s not ready” but?has already?promised no surprises for industry and delayed any changes until January 2o17 as industry adjusts?to what’s been a historic downturn.?Notley’s strategy to address greenhouse gas emissions are?already announced?with a carbon tax, 100-megatonne cap on GHGs from oilsands and the Alberta Energy Regulator assuming?responsibility to reduce methane emissions from?well sites and oilfield facilities. It remains to be seen what will comprise?the national climate strategy Prime Minister Justin Trudeau has promised this spring. He’s?said the?plan with the provinces will?be in place 90 days after the?UN climate summit in Paris — so?about March 12.On May 20, the National Energy Board is scheduled to?release its?recommendations on Kinder Morgan’s plans to twin the existing Trans Mountain oil pipeline from Alberta to suburban Vancouver.With TransCanada’s Keystone XL pipeline denied in the U.S., Enbridge’s Northern Gateway?pipeline facing intense opposition in northern B.C. and TransCanada’s Energy East still early in the NEB’s review process, Trans Mountain’s project is key to the industry’s goal of?accessing more global export markets.In a decision critical to the?beleaguered gas industry, the Canadian Environmental Assessment Agency is expected to rule this spring on the application of Malaysia’s Petronas to build a terminal?in B.C. to ship liquefied natural gas to Asian markets. A final investment decision from Petronas for the first of the LNG facilities for the West Coast would likely follow government approval.?It will be?the oil price that?determines the fate of the industry more than anything else.?After effectively scrapping?production quotas in December — and with renewed U.S. and Iranian oil exports expected to hit global?markets this month —?the Organization of Petroleum Exporting Countries is to meet?June 2 to discuss the price war orchestrated by Saudi Arabia to?push?high-cost?non-OPEC supply, including the oilsands, out of the market.In an industry defined by?uncertainty,?Canadian producers have always known there’s?nothing they can do about?the price of oil and understood it’s up to them to change with the times to survive.?Stephen Ewart is a Calgary Herald columnist ................
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