Corona crisis lowers world oil prices to 15-year lows • Israeli consumer may like cheap fuel, but right now he should be worried • Experts: "When energy companies are in trouble, it's a problem for the entire economy" • And there's a reason for optimism

• A severe blow to the oil states. Refinery field in Iraq

  Photography: 

  AFP

In September 2012, the price of fuel at self-service stations was NIS 8.25. That month Brent oil barrel traded for $ 125 - about $ 100 more than today's price. Now the price of fuel at self-service stations is NIS 4.89 per liter. The all-time high of world oil prices was recorded in July 2008, following the outbreak of the Great Crisis, when the price of the Brent oil barrel reached $ 147.25. That month, the price of a liter of fuel at stations in Israel was NIS 7.01. This week the price of a barrel of oil dropped to under $ 20 a barrel.

In the country, the relationship between oil prices in the world and fuel prices at stations is less noticeable, since the crucial component of fuel prices is tax and not oil, so that, with the price of liters of fuel at the stations at NIS 4.89, as stated, about NIS 3.8 of it constitutes excise and VAT taxes. - 77%.

Because the more dominant component, excise duty (NIS 3,074), is a fixed component, the proportion of the consumer price increases as the oil cost component decreases. In the U.S., drivers feel the close connection between the price of a barrel of oil and a gallon (3.78 gallon) price of fuel at the stations.

In California, on the West Coast - the side of the higher U.S. prices, the price of fuel has dropped from $ 4 a gallon to at least $ 2.9. Central America has stations that offer a gallon for just over a dollar - about a gallon, and the average price on the East Coast It stands at $ 2 and less per gallon - about NIS 1.8 a liter.

Oil before gold, corn and silver

The Corona crisis has dropped world oil prices to a 15-year low, largely reflecting the world's story now. Normally the consumer likes low prices, but here is a great example that reminds us why a very low price is not really desirable to us - this price now comes from the fact that we travel far less, and not by choice.

As oil prices rise, they express an increase in global growth, which we prefer, because it is accompanied by an increase in the standard of living in general, especially for those with income from work and investment, but in fact for the general population. 

Greater influence. Kahanovich // Photo: Oded Karni

However, the impact of oil prices on our lives is not limited to the effect on gasoline prices at the stations. "The first decade of the millennium was characterized by high inflation relative to its second decade in the world. This inflation was driven by world oil prices," says Phoenix Excellence Chief Economist Amir Kahanovich. "Oil prices are affecting transport and transportation - on roads, air and sea, as well as the world's productive factories, electricity and heating prices."

Oil is the most consumed and traded commodity in the world. In the list of ten requested commodities, Brent crude oil is at the top. Second in the list is steel and third place is WTI oil - the type mainly produced in the US (Of all the world's oil types, these two are the most marketable in the world). Incidentally, the following places on the list are soybeans, iron, corn, gold, copper, Aluminum and silver, only two out of ten are food, oil and metals. 

Worry even before the Corona

The United States has become the world's largest oil producer in the last decade, producing up to 12,000 barrels a day before the current crisis. Russia's second largest producer is producing less than 11,000 barrels a day; followed by Saudi Arabia (less than 10,000), Iraq ( 4,700), Canada (4,400) and China (3,800).

In total, around 100,000 oil barrels a day were produced on the eve of the crisis. However, the United States is only the fourth in the world on the list of oil exporters, after Saudi Arabia, Russia and Iraq, since it first produces oil, like its other produce, for self-use.

China is the world's largest importer of oil, which it purchases mainly from Europe, the Gulf states and a few from the US. In the US, the majority of oil use - about 60% - is for vehicles, similar to the situation in Israel. In Europe, about 50% of it is used for land transport, about 10% for aviation and about 8% for ships.

In recent decades, the trend in the world has been to reduce the use of oil for power generation and industry, and of course the direction is also beyond electric vehicles. There are around 1.8 trillion barrels of oil in the world, with about 360 million barrels a year consuming the crisis, so today's uses are estimated to be 50 to 40 years old. But according to trends in the world, the decline in oil demand seems to extend the life of oil reserves much more. In fact, there are currently no alternative solutions for oil, mainly in aviation and cruising and other marginal uses for the industry. 

"Oil prices in the world began to fall even before the Corona crisis," recalls Kahanovich. "Even before China began to shut down operations in January this year, oil hit some severe blows that lowered its prices: US oil shale production, electric vehicles, cartel's internal disputes Venezuela's oil and Russia government has kept international companies out of the world's largest oil reserves, boycott Iran and US President Donald Trump's attempts to cut world gas prices by boosting US output - these are just some of the big events that have pushed the barrel price The oil is under $ 60. Only then did the current crisis emerge that bites another 50% of its prices. "

As prices began to plummet, the obvious question was how low would the prices be? Investors have re-examined deposit costs to learn about the price floor. Well, calculating production costs is not simple: "There are fixed components of cost, but it turns out that the dominant component of energy production is ... energy. So as energy prices go down, production costs go down as well," explains Kahanovich.

Apparently, today's costs range from $ 10 a barrel to $ 30 or more. In other words, there are now companies in the world that are losing money at current oil prices. Kahanovich mentions the staggering publication of investment bank Goldman Sachs, who explained that oil production costs do not necessarily indicate the price of his floor.

Bank economists explained that the price of oil could even reach a negative price. These companies cannot stop production, and when their storage facilities are full they may offer money to those who vacate their storage space. "Oil prices are affecting other sectors of the economy, such as the financial sector. Energy companies are companies that require high financing and so when they get into trouble - this is also a problem for the credit world in general," says Kahanovich. 

In Venezuela, turnips arrived

On the face of it, today's oil prices, which the world has not known since 1999, are momentary, because they are linked to the proactive restoration of world economies. Anyone who believes this can identify a good investment opportunity, as the seemingly end of the downturn should bring the price back to the level of the crisis - about 100% and more of its price today.

But Kahanovich doubts: "The oil cartel has cracked; an unprecedented quota cut has been agreed around in the world, and President Trump has agreed to a cut in the US, so it's not certain prices will return to the same level immediately after returning to normal. Oil prices are influenced by many factors. " 

"World oil prices are largely linked to growth rates, and this year low growth rates are expected in the world," says Shai Tesler, global market analyst in Bank Hapoalim's consulting and research industry. He said, "China is the world's largest importer, and the recession there began even before the current crisis."

Tesler also explains that the price of oil production varies from country to country. "There are companies that make $ 25. Some companies are already profitable at that price. That's why there is a big drop in output. Earlier this week, President Trump expressed concern that the oil industry would not return to itself." Tesler mentions that in the past, when talking about cutting production quotas, they talked about a dramatic cut of 1.8 to 1 million barrels a day, but now they have already agreed to cut 10 million barrels a day. 

He also explains that low oil prices are now lowering the attractiveness of alternative energies, such as oil shale and natural gas, and more likely to be renewable energy - sun, wind and the like. But in the meantime, the oil shale whose production cost was previously $ 70 and down to $ 35-30, so these alternatives would make it harder for oil prices to return to peak prices. 

According to Tesler, there is a relationship between world commodity prices used as raw materials for industries. Investors in oil and commodities can do so through commodity exchanges - in futures (exchange contracts) on commodity prices. But oil investors have more ways to do that. 

"So, for example, you can invest in energy companies - oil producers, oil refineries and oil leaders. There are also some who deal with all three. You can invest in their bonds or their shares. But you have to understand them. As a sector, they have an adjustment to energy prices. In the S&P index, they are considered extremely vulnerable. These stocks in the index fell 43% since the beginning of the year - a little less than oil prices.

"It is interesting to note that there is also one relatively small company now that has increased by 8% - COD, but most of the companies in the index have fallen, of course, some have fallen by 30% and some by 60%. Nobel Energy, known to us from the natural gas reservoirs in the country, has - 70% ". 

Given the many changes, the world seems to be waiting with anticipation, with some countries having difficulty coping with the current situation. In Venezuela, from the oil power, citizens have come to turnips because of corrupt management of this precious resource. In Iran too, poverty has reached new highs due to its boycott, which has led to a drastic decline in oil output. Now falling oil prices are a severe blow to oil countries in general, and this has far-reaching effects on Russia and its dwindling revenues, as well as the Gulf states.

Saudi Arabia has been aware of this risk over the past decade and has worked to diversify its investments. The world's largest producer, the US, will also be hit by this crisis as an oil exporter and as its major energy companies will be affected, but its revenue structure is very diverse, unlike other oil countries.