The source seems quite sound and the reading makes a lot of sense. IMHO the losers are those commodity market types who bet upon oil prices remaining high. The winners are clearly the common people who are finding lots of savings in just about every phase of their lives. Read more @ http://www.afr.com/p/markets/market_wrap/astonishing_shale_growth_bolsters_gTpNdWx02sgkgV8zUlwpBN
Excerpt: They certainly were a quarter of a century ago. Plunging oil prices in the latter half of the 1980s helped pave the way for the break-up of the Soviet Union by robbing it of revenue it needed to survive. The depressed market also may have influenced Iraqi leader Saddam Hussein's decision to invade fellow producer Kuwait in 1990, triggering the first Gulf War. Russia again looks likely to suffer from the fallout in oil markets, along with Iran and Venezuela, while the US and China come out ahead. Oil is "the most geopolitically important commodity", said Reva Bhalla, vice president of global analysis at Stratfor, an advisory company in Austin, Texas. "It drives economies around the world" and is located in some "usually very volatile places". Benchmark oil prices in New York have dropped more than 30 per cent during the past five months to about $US75 ($86.84) a barrel as US crude production reached the highest in more than three decades, driven by shale fields in North Dakota and Texas. Output was 9.06 million barrels a day in the first week of this month, the most since at least January 1983, when the weekly data series from the Energy Information Administration began. Daniel Yergin, vice chairman of Englewood, Colorado-based consultant IHS and author of a Pulitzer Prize-winning history of oil, said: "For 10 years, the defining factor in the oil market was the growth of China and Chinese oil demand. Now the defining factor is the astonishing growth of US oil production." Saudi Arabia and Kuwait have begun what energy economist Philip Verleger calls a "price war of necessity" in response, aimed at protecting their market share and forcing producers in the US and elsewhere to reduce output. ‘Saudi Arabia is really taking a big gamble’ So far, US companies are not flinching, believing they have more staying power than many of Saudi Arabia's 11 partners in the Organisation of Petroleum Exporting Countries, or OPEC. Archie Dunham, chairman of shale producer Chesapeake Energy in Oklahoma City, said: "Saudi Arabia is really taking a big gamble here. If they take the price down to $US60 or $US70 a barrel, you will see a slowdown in the US. But you're not going to see it stop." Leonardo Maugeri, a former executive at Italian oil company Eni SpA who is now at Harvard University in Cambridge, Massachusetts, said the market had entered a "grey zone". A terrorist attack on oil fields in the volatile Middle East could send prices back up. So too could a cutback by OPEC — which meets on November 27 in Vienna — or a revival of global demand, though Maugeri says neither is likely. The most probable case was a four- or five-year cycle with prices in a general range of $US65 to $US80 a barrel, he said. That compares with an average of about $US88 from 2008 to last year and a high of more than $US140 at one point during that period. The big question was whether oil-producing nations would react with accommodation or confrontation, said James Burkhard, vice president and head of oil-market research for IHS. "That's where the water gets a little muddy," he said. "That story will be unfolding in the months and year ahead. It does add greater uncertainty and volatility that can often lead to negative surprises." Russia is the biggest loser, according to a Bloomberg Global Poll of international investors last week. Revenue related to the sale of oil and natural gas accounts for about half the country's budget. The combination of US and European sanctions and declining oil prices meant a period of extended economic stagnation for Putin comparable to the later years of Soviet leader Leonid Brezhnev's 1964-1982 rule, said Neil Shearing, the chief emerging-markets economist at Capital Economics in London. Russia's economy will contract by 1.7 per cent next year after stalling out this year, IHS forecasts. It projects inflation will rise to 8.4 per cent from 7.6 per cent, boosted by a depreciating currency. The ruble has fallen about 30 per cent against the US dollar this year. ‘The population has rallied behind Putin’ The economic woes thus far have not undercut the Russian leader's support at home or his determination to stand up to the US and European criticism over Ukraine. Alexei Mukhin, head of the Centre for Political Information, an independent consulting company in Moscow, said: "Thanks to sanctions, the population has rallied behind Putin. People are ready to put up with hardship in order to resist the West." This could change the longer oil prices stay down and the more Russia's economy weakens. IHS chief economist Nariman Behravesh said "it will erode Putin's support" if it goes on for a further six months to a year. Iran had seen its revenue from oil exports fall by about 30 per cent, President Hassan Rouhani said in remarks to parliament published on October 29 on Shana, the Oil Ministry's news website. The nation needs to achieve a break-even sales price of $US143 a barrel this year to keep its budget in balance, says data compiled by Bloomberg. Like Russia, Iran's economy has been weakened by economic sanctions — in its case over its nuclear program. The steps by the US and its allies have almost closed Iran's oil and gas fields to investment in the past decade, limiting the country's access to technology to boost output. The decline in crude prices and a November 24 deadline for a nuclear accord are raising pressure on Rouhani, elected last year on a platform to end Iran's isolation and revive growth. If he does strike a deal and sanctions are lifted, it could put further downward pressure on oil prices as the country increases its exports. That's what London hedge-fund manager Pierre Andurand — who predicted the price plunge last month — is betting on. He sees Brent crude declining to $65 to $70 a barrel as Iran boosts output after reaching a nuclear agreement, according to a November 11 letter to his investors. Brent for January settlement ended on Wednesday at $US78.10 a barrel on the London-based ICE Futures Europe exchange. Falling prices also are bad news for Venezuela and its increasingly unpopular president, Nicolas Maduro. The country's economy is already in deep trouble, with inflation of 63 per cent in the 12 months through to August.
