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Oil prices drop below $38 by mid-December 2015, as the Saudis continue to push prices down further by continuing production increases. No change is planned for 2016 and analysts expect low oil prices into 2016. At $38 a barrel it becomes uneconomical for most shale oil producers to operate in the U.S. About 50,000 jobs are lost in Texas and 250,000 jobs worldwide. This is a boost for large oil importers such as India, Japan, and Europe. China also stands to benefit from low oil prices. Nigeria, Venezuela, Iran and Russia have the most to lose from an extended period of low oil prices. Politics in the Middle East also may play a part in decisions as the Saudis oppose intervention in Syria and Iraq by Russia and Iran. Rising shale oil production in the U.S. could also be one of the additional targets of Saudi policy. One consequence is that OPEC is divided with the Saudis going their own way.

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In response to bellicose speeches by Republican presidential candidates Mitt Romney and Rick Santorum at the American Israel Public Affairs Committee conference on March 6, 2012, President Obama stated at a press conference: "This is not a game..The one thing we have not done is we have not launched a war.. If some of these folks think we should launch a war, let them say so, and explain to the American people." The U.S. president, advisors and intelligence officials believe that Iran has yet to acquire a nuclear weapon, that there is time for sanctions to work and make the Iranian government give up any weapons programs it is working on. Their view as stated by the U.S. President is that this time cannot be measured in two days or two months. Recent elections in Iran show divisions in the government between the Ayatollah Khamanei and premier Ahmadinejad, with the elections favoring candidates supporting Khamanei. There is also the dynamic of changing relations in the Middle East- between Iran and other countries such as Iraq, Turkey, Saudi Arabia, India- which have strong ties to the U.S., and Iran's relations with China and other countries which have close economic ties to the U.S. In addition in a country with a demographic skewed heavily towards younger people and a third of the people under 15, the democracy protests in 2011 about a flawed election in 2009 are supported largely by university and college students. That election may actually have been stolen by Ahmadinejad from Mr. Moussavi, who in an election eve television debate accused Ahmadinejad of "adventurism, illusionism, exhibitionism, extremism, and superficiality," (Nazila Fathi, NYT 6/4/2009). These factors are likely to be behind the Obama administration's sense of a "window of opportunity," to use Mr. Obama's words. Recent polls by the University of Maryland's Prof. Telhami show only 19% of Israelis favored a military strike without U.S. backing in Feb. 2012, and Israeli public opinion experts see Obama's position as reflecting a sound judgement. Research by Citigroup shows that at a price for Brent crude of $120 with an escalation in Iran, it would take 9% of the world's GDP to support the higher energy costs, hitting Europe especially hard (Liam Denning, WSJ 1/6/2012)....

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India had 11 interest rate increases in 18 months, but this has not slowed the rise of inflation. The Wholesale Price Index is around 10%. Inflation expectations as measured by the Reserve Bank of India are around 12% in mid-2011.

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Questions about the viability of Canadian crude oil production from tar sands and shale as oil prices for Canadian crude are at about $17 in Jan. 2016. Western Canadian Select from Alberta traded at about $14 in Jan 2016. Crude oil NY benchmark is at $31, other crude is priced lower if transportation costs and other factors including quality and grade have to be figured in.

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The U.S. Agriculture Department cuts its estimate of corn crop yield per acre in the U.S. by 15.5%, as a result of the severe drought in 2012. Agriculture Secretary Vilsack, says the situation for farmers is better this time than during the last drought in 1988. Now 85% of farmers have crop insurance compared to 25% in 1988. The Agriculture Department estimate is for a 3-4% increase in prices in 2013. Capital Economics says the impact on GDP in the U.S. will be about 0.1%. Because 40% of the corn crop goes into ethanol production there is renewed debate about the 2005/2007 Renewable Fuel Standard, which requires 13.2 billion gallons of corn based biofuel be made in 2012. Worldwide the bad weather conditions in Brazil, India and Russia are worsening the outlook for food supplies. The U.N. Food and Agriculture Organization says global food prices increased by 6% in July 2012, with corn prices up 23%.

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Vegetable prices in China went up by 22% in July 2010, from a year earlier, and grain prices went up by 12%, eggs by 8%. About a third of household budgets go to food in the budgets of people in India and China. Wheat prices are climbing on world markets after the ban on Russian exports, and rice prices are also climbing with the floods in Pakistan ruining the rice crop- Pakistan being the No.3 world's rice exporter. Personal spending accounts for 36% of overall GDP in China and 57% in India. Food prices in China were up 6.8% in July, 2010. Industrialization in China, and agricultural land freely taken over for factory sites with the consent of local authorites, may be a complicating factor. See the link to BYD's acquisition of agricultural land for factory site.

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Commodities prices hit a low in June before the second Greece election on June 16, with lower unemployment numbers in the U.S. and growth of 6-7% in India and China. Still average prices of oil in 2012 of $115 a barrel are higher than the level in 2011. And corn prices dropping to $5.25 a bushel are still high compared with prices earler. Corn farmers in the U.S. are adding to acreage. The relatively lower prices also give more room for smaller stimulus by central banks to stimulate growth. Freeport-Mining CEO, Richard Atkinson said in a presentation that the growth is coming on top of a bigger baseline for China, India and Brazil. China's copper consumption went up by about 6 million tons a year, averaging 13% growth a year in the period 1995-2010. Now even with slower growth at 6% a year, by 2025 he estimates China's copper consumption at 9 million tons per year. This is a structural change that is supporting commodity prices, says Amrita Sen, analyst at Barclays Capital.

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How the energy business sale of gas turbines to provide electricity in the middle east is boosting GE's energy business worldwide, increasing sales to over $20 billion in 2007, at the last peak in 2002 sales reached $22.5 billion for GE's energy business. Couple of things to note. GE's revenue is growing at about 20% a year in the middle east. Its sales in the middle east now exceed China's with $8 billion in Middle East for 2007 vs. 6 billion in China. By 2010 sales from China India Brazil and Middle East will total $50 billion compared to 30 billion today. thst is an increase of 67% over 3 years. Power is a big chunk of this in addition there are aircraft engines and health care equipment. See the other article on middle east growth July 19, 2007 WSJ. About half of the population of 300 million in the middle east is under 20 years of age. Also note the last runup in GE's stock price was from its surging energy business in the 1990's.

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Daniel Yergin of consultancy firm IHS describes the geopolitical disputes in the Middle East between Russia, Saudi Arabia, and Iran that are leading to likely continued oversupply of oil in 2016, keeping prices in the $30-$40 range. Saudi Arabia is not likely to change its policy of going after market share, Venezuela is affected but lacks a voice in OPEC decisions, Russia continues its policies in Syria and Iraq under the Putin government affecting other Sunni states, and Iran following the lifting of sanctions is likely to ramp up supply to make up for its lost market share- all leading to an extended period of low prices. This situation benefits China, the European Union countries, India, Turkey and the U.S. in a period of slow economic growth in 2015-2016. Russia looks to use this period of low oil prices to shift to domestic industry after a period of rising imports when oil prices were high. The Saudis seeing their interests in the region threatened by Iran and Russia, and dissatisfied with the foreign policy of president Obama, see a policy of pushing for market share as appropriate in the current geopolitics of the region....

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Denning says that because of the enormous repercusions on Iran's economy of a war in the Persian Gulf, a more likely scenario is not the cutoff of supplies of Iranian oil altogether but a smaller list of buyers for Iranian oil, making Iran sell the oil at a discount. Saudi Arabia's and Libya's added production would bring more oil to the market. The impact will be larger on Europe because of the decline in the value of the euro, with Brent crude on a 12 month average basis costing 14% more now than in the peak price in 2008. By comparison in dollar terms the comparable figure is 4% higher for the U.S. At a price of Brent crude of $120 in 2012, according to Citigroup, energy costs would take up 9% of world GDP, putting pressure on a economic recovery in Europe and the U.S.

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Sharp drop in oil prices in Dec. 2015.

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A shakeout for manufacturers in the solar industry is developing in 2011-2012, as prices of solar components drop sharply. There is slowing growth for solar products in 2012. Seven solar power manufacturers have filed for bankruptcy or insolvency in 2011, including two German companies Solar Millenium and Solon SE, and Solyndra LLC of the U.S. Debt exceeds market capitalization for the 10 largest publicly traded solar companies. A major reason is the subsidies offered by governments in Europe, the U.S. and China, which resulted in a glut in manufacturing capacity and falling prices. Chinese banks encouraged by the Chinese government have given $43 billion in credit facilities to Chinese renewable energy companies, according to Bloomberg Energy Finance. Prices of solar panels at $1.60 per megawatt in 2010, dropped to 90 cents per megawatt in 2011. Another problem is slowing demand. In Europe banks are reducing funding. Installations doubled for solar energy in Germany in 2010, and dropped 29% in 2011, according to Jefferies. Germany is the largest market for solar energy in the world....

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During 2012 and 2013 the U.S. put pressure on China and India to cut oil imports from Iran to increase the effectiveness of sanctions. As negotiations eased the sanctions, China increased oil imports in 2014 by 30% in 2014 over the prior year. China's Foreign Ministry sees a "win-win spirit" in the nuclear deal that opens up economic relations with Iran. Analysts say China has setup three new storage facilities on its eastern coast with about 45 million barrels of new capacity, which could be filled with new supplies as its growth slows and demand decreases. China's imports were about 7 million barrels a day in June 2015.

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Obama says oil sand leave a big carbon footprint in his interview with the Canadian Broadcasting Corporation, just before his visit for talks with Candian Prime Minister Harper in Ottawa, Canada. The talks will focus on climate change, whether the oil sands can continue to be exempt from regulation, and other issues including a "Buy America" provision.

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Analysts fear an oil shock in 2012 similiar to that in 2008. There is similiarity in the situation now and in 2008- as in 2008, the surge in oil prices comes at a time of higher tensions with Iran and shrinking spare capacity. Spare capacity is at 2.5 million barrels a day on average for January and February 2012, according to the Energy Information Administration. This compares with 3.7 millon barrels a day for the same period in 2011. Part of the reason is that global oil demand is increasing in 2012 by 1 million barrels a day, to 89 million barrels a day. Technical and political problems have shutdown another 750,000 barrels a day. The problems begin to kick in during the second half of 2012. The U.S. ban on dealing with the Iranian central bank for oil trades starts in June 2012. According to the International Energy Agency, the EU embargo and U.S. sanctions will take 1 million barrels a day of Iranian crude out of the market. The result will be that demand exceeds supply by the third quarter by 1.1 million barrels a day, according to the U.S. Energy Information Administration. Use of existing reserves in Europe, the U.S. and other countries will make up the gap. The effect will be to put pressure on oil prices. May Brent crude on the ICE Futures Europe exchange was up to $125.81 a barrel, on March 16, 2012, and prices for April delivery were at $107.06 a barrel on the New York Mercantile Exchange....

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Oversupply and price wars in China's solar power industry in 2012.

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As its economy slows and facing high debt levels, China benefits by an estimated $18 billion a month from lower oil prices in 2015. The estimate is from Starfort Holdings, investment and private equity group. The estimates as China benefits from lower prices of all commodities, including oil, are of about $250 billion annually as China replenishes its stocks of commodities. With $12 million barrels imported daily China is a major emerging market beneficiary, along with India, of the drop in oil prices. Continuing pressure on prices from the expected resilience in shale oil production in the U.S. with learning and the development of new production methods means the benefits are likely to continue. China has also not renegotiated price points in deals made earlier at higher prices with China and Venezuela, as it pursues its foreign interests. Stockpiling of grains and edible oils are being increased by 33% in 2015 by $24.7 billion.

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Projections by the U.S. Energy information Administration and the International Energy Agency for oil supplies and demand 2010-2035. Continued high growth in demand in India and China, and declining demand in Japan, U.S. and the EU.

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Several factors make it likely that oil prices will remain low for an extended period of time into 2016 and beyond. As Ailworth points out nobody is blinking. The Saudis plan no change to their high production. U.S. oil producers in the Gulf of Mexico have already made investments for deep sea drilling wells following the end of the moratorium on drilling in the Gulf. Many of these wells are producing at very low marginal cost as most of the investments have already been made. It makes economic sense to produce even in a low price environment, according to Andarko. Shell continues to invest in the deep waters of the Gulf. Its production is up 10% to 250,000 barrels a day. American shale oil drillers have not cut back as much as expected, partly because many companies with large debts need the cash flow to pay interest on debt. And some of the 1200 wells that were drilled but left untapped may also be brought on stream to slow production declines. As a result the overall production of American crude, according to monthly federal information, has declined by about 3% to 9.3 million barrels from the peak reached in April 2015. This helps the U.S., Europe, China and India, at a time when their economies are experiencing different problems. It hurts Russia, Venezuela, Nigeria, and Iran. Russia is coping as its exporters convert dollars into rubles after the sharp depreciation in the ruble, and helps local industry including steel producers, as well as wheat exports. Venezuela's economy is the worst hit. And Iran now has to produce at high levels in 2016 to improve its economy following the lifting of sanctions....