Plunging Oil Prices A Reality Check.

[icyfroth]

Citizens Electoral Council of Australia
Media Release Thursday, 22 January 2015

Just as the oil market can crash, so can the property market

The plunging oil price that is down by more than half in six months is a reality check to Australian home buyers.

It is a reminder that markets can go down as fast, and often faster, than they go up.

The plunge also proves that the high price for the past decade was artificial—bearing no relation to cost of production or to supply and demand. (This means that every time Australians filled up since 2004 they were ripped off by the global oil cartel and commodity speculators.)

It is because the high oil price was artificial that nothing has been able to stop its recent plunge.

Another market looks remarkably similar—Australian property.

Beginning in 2000, Australian property prices suddenly shot up. Contrary to the self-serving analysis of banks and investment spruikers, it was not related in any way to supply and demand.

In 2000, the Australian population was slightly less than 20 million; by 2013 it reached 23 million. Yet in that time property prices tripled, quadrupled and quintupled, depending upon the city.

The ratio of household income to property exploded from 3.5 times in 2000—the long-term average—to 9 times in Sydney and Melbourne.

Most of that increase was between 2000 and 2004, which underscores that this was disconnected from demand driven by population growth.

Instead, it was driven entirely by a massive flow of money into the property market—just like the oil market.

(The flow of money into the Australian property market was caused by a combination of government policy and bank speculation.)

Millions of Australians are trapped with mortgages on overpriced properties that they can just barely afford because interest rates are at record lows; in fact at “emergency levels”.

They could suddenly find themselves with properties worth less than half of what they owe on them.

This would be a catastrophe for mortgage-holders, but it would be a bigger catastrophe for the banks—which caused it—and the flow-on effect would be a catastrophe for the Australian financial system.

This looming danger is one of the major reasons why Australia needs a Glass-Steagall separation of Australia’s banking system, in which all retail banking is completely separated from investment banking.

This is the only way to ensure that, when the crash happens, the government will be able to step in and keep retail banking functioning, so that the daily economy can keep functioning, and keep homebuyers and tenants in their homes.

If enacted now, ahead of the crash, it will force speculators out of the housing market, which will bring down house prices, but that will make housing more affordable again—just like petrol.

For those so trapped in a high mortgage that this is scary, be assured that wishful thinking won’t keep prices up. The oil plunge shows that they can and will crash anyway. Your only hope is to fight for the Glass-Steagall policy so that the plunge in housing doesn’t wipe you and everyone else out.

 http://cecaust.com.au/releases/2015_01_22_Aus_Mortgages.html

A few points worth pondering there.

[horizon1907]

Reminds me of that ad, Oils ain't oils !!

[icyfroth]

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@horizon1907 wrote:

Reminds me of that ad, Oils ain't oils !!

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I like that I can fill my tank for about $40

[cherry*135]

The US increased their oil production, the Middle East upped theirs to match - result an oil glut.

Pretty simple. Excess supply, same demand.

No one has upped the supply of houses.

[icyfroth]

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@am*3 wrote:

The US increased their oil production, the Middle East upped theirs to match - result an oil glut.

Pretty simple. Excess supply, same demand.

Exactly:

"The plunge also proves that the high price for the past decade was artificial—bearing no relation to cost of production or to supply and demand. (This means that every time Australians filled up since 2004 they were ripped off by the global oil cartel and commodity speculators.)

Meaning that supply can be witheld or released to manipulate the market

No one has upped the supply of houses.

Really? Maybe not where you are, but take a little trip to Sydney sometime and have a look at all the residential development taking place. True, not houses per se but massive apartment blocks.

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[this-one-time-at-bandcamp]

Meaning that supply can be witheld or released to manipulate the market

That's capitalism at its finest............Limit the number of X-boxes produced, price is high.........Limit the number of Jaguars built, price is high.........Limit the number of prints by a famous artist, price stays high..........

Churn out blue jeans by the ton, price drops..........

[siggie-reported-by-alarmists]

 US shail oil production is saving the global economy 5 billion dollars a day......

[cherry*135]

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@icyfroth wrote:

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@am*3 wrote:

The US increased their oil production, the Middle East upped theirs to match - result an oil glut.

Pretty simple. Excess supply, same demand.

Exactly:

"The plunge also proves that the high price for the past decade was artificial—bearing no relation to cost of production or to supply and demand. (This means that every time Australians filled up since 2004 they were ripped off by the global oil cartel and commodity speculators.)

Meaning that supply can be witheld or released to manipulate the market

No one has upped the supply of houses.

Really? Maybe not where you are, but take a little trip to Sydney sometime and have a look at all the residential development taking place. True, not houses per se but massive apartment blocks.

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Yes, but there is demand for those house/apartments, the supply is meeting the demand which is domestic.

Oil supply is shipped internationally, we now have two major producers competing with the same product.

 More production (supply) but same demand = glut

The high oil prices in the last decade was due to Middle East providing most of it, not much competition.

[cherry*135]

Oil prices keep plummeting as OPEC starts a price war with US

To understand this story, we have to go back to the mid-2000s.

Oil prices were rising sharply because global demand was surging — especially in China — and there wasn't enough oil production to keep up. That led to large price spikes, and oil hovered around $100 per barrel between 2011 and 2014.

Up until very recently, however, that US oil boom — along with increases in Canada and Russia — had a fairly minimal effect on global prices. That's because, at the exact same time, geopolitical conflicts were flaring up in key oil regions. There was a civil war in Libya. Iraq was a mess. The US and Europe slapped oil sanctions on Iran and pinched that country's exports. Those conflicts took more than 3 million barrels per day off the market.

Things changed again around September 2014. Many of those disruptions started easing. Libya's oil industry began pumping out lots of crude again. And even more significantly, oil demand in Asia and Europe has been weakening — particularly in places like China, Japan, and Germany.

The combination of weaker demand and rising supply caused oil prices to start dropping from their June peak of $115 per barrel down to around $80 per barrel by mid-November. Oil is still much pricier than it was a decade ago (when it was still around $40 per barrel). But it's dropping for now.

http://www.vox.com/2014/11/28/7302827/oil-prices-opec

Supply and demand is always going to be a main factor in oil/petrol prices going up or down.

[this-one-time-at-bandcamp]

The high oil prices in the last decade was due to Middle East providing most of it, not much competition.

It was based on speculation, more than actual supply and demand.  Every time there was a conflict, or even an event like a hurricane, or platform fire, the perception was that there would be a shortage, and world spot prices jumped.