Drop In Oil Prices Research Articles

Addressing oil price changes through business profitability in oil and gas industry in the United Kingdom.

In this paper, we investigate how crude oil price and volume traded affected the profitability of oil and gas companies in the United Kingdom (UK) since the financial crisis started in 2008. The study benefit from insights of the financial statements, to develop a model that focuses on how changes in oil price impact corporate performance. In order to observe the financial indicators that influence the performance, as well as the effects that changes in oil prices and demand of crude oil have on the profitability of oil and gas companies, we apply comparative regression analysis, including the generalised method of moments estimation technique for panel data set. The sample is consisting of 31 oil and gas companies in the UK, and the period analysed is 2006–2014. Results show that profitable oil and gas companies managed to face the drop in oil price and recover, characterized by significant cash flows and stock turnover, efficient use of assets, and high solvency rates. Although the oil price and volume traded do not significantly affect profitability and other financial ratios, if the oil price continues to decrease, it would permanently alter both the UK economy and oil and gas companies. In order to survive, companies make drastic cuts and defer essential investments, often at the long-term expense of asset performance. This study is important in a world where the energy consumption steadily grew over time. However, the renewable energy is cheaper and more environmentally friendly, and thus, countries where oil and gas industry is one of the most popular sectors face an economic decline. These results could be useful for investors, managers or decision makers, reclaiming strategic decisions in the current uncertain and volatile environment.

Long-term cost trajectories for biofuels in China projected to 2050

Biofuels mitigate and offset greenhouse gases. A long-term levelized cost of energy (LCOE) estimation for biofuels in China was carried out, using a novel probabilistic model to analyze the likelihood of biofuels economically outrunning fossil fuels. This model calculated LCOE based on five uncertain input parameters fed into a Monte Carlo simulation, namely, discount rate, firm size, feedstock price, product yield and catalyst/enzyme cost, while key assumptions were used to determine their probability distributions. Model results show that the mean levelized costs of most biofuel technologies will fall below 9500 Chinese Yuan per ton by 2030 and below 9000 Chinese Yuan per ton by 2050; it is highly possible for most biofuel technologies to gain economic feasibility and competitiveness by around 2025–2030 in China. The LCOE reduction of 1.5-generation (1.5G) biofuels is feedstock-driven, while that of 2nd-generation (2G) biofuels is technology-driven. Meanwhile, 1.5G biofuels are more sensitive to crude oil price changes than 2G biofuels, with a drop in crude oil price having a greater effect on 2G biofuels than a rise. On average, every 10% rise in crude oil price accelerates their economic feasibility by 2–3 years, while every 10% drop delays this feasibility by 3–5 years.

Causes of delay in the construction phase of oil and gas projects in Malaysia

The drop-in oil price in recent years has seen the oil and gas projects affected negatively. Thus, most Engineering, Procurement, and Construction (EPC) companies are opting to optimise the project especially in terms of mitigating delays in construction to achieve the project expectation. Delay causes threat to a project objectives in terms of time, cost and quality. It is also a crucial element in deviating from the client’s expectation in terms of productivity, safety and standards. This paper aims at examining the causes of delay in the construction phase of oil and gas projects in Malaysia. A comprehensive literature review from various sources through books, conference proceedings, the internet, project management journals as well as oil and gas industry journals was made to materialise this paper. There were a few studies that related to this problem and shared a similar view with general construction projects, yet only a fraction of the factors was accepted due to the differences between the two industries. Other variances of the papers included on regional basis or on specific countries. The factors of these attributes were still accepted since it was still applicable to the oil and gas industry and there were not any major variances between countries. The paper has found that there are several significant factors that cause delays in the construction phase of oil and gas projects in Malaysia. The similarity of these delay factors can be grouped into six major groups, namely client, contractor, engineering, external, project and resources. This initial study is based purely on literature review, comparison of similar cases, cross referencing and critical judging. The causes of delay specific to the construction phase in oil and gas projects in Malaysia should be further researched with focus only in the Malaysian projects and industry players.

Impacts of supply and demand factors on declining oil prices

Extraordinary oil price declines were observed from 2008 to 2009 and from 2014 to 2016. During these periods, international oil prices collapsed by more than one half. Several reasons have been suggested for these crashes by numerous industry experts and scholars. In this study, we propose a new approach to explain the causes of the extreme oil price plummets via the supply and demand factors of price determinants. The autoregressive models with exogenous variables reflecting real demand, speculative demand, and supply factors are proposed and applied for forecasting monthly global crude oil prices during their periods of decline. Using the forecasting results, we retrospectively try to discover the factor that is best able to improve forecasting performance. During the first period of oil price decline, real demand reduction seemed to play a more prominent role compared with the other factors. Meanwhile, some supply factors, measured by U.S. shale oil production, combined with real and speculative demand factors, played an important role during the period of second oil price drop.

A two-sided market platform analysis for the electric vehicle adoption: Firm strategies and policy design

This study explores how to facilitate the electric vehicle (EV) diffusion from a two-sided market platform competition. We develop a stylized model depicting the platform competition between electric and gasoline vehicles by combining indirect network effects of consumer and energy supplier sides as well as vehicle manufacturers’ profits. The findings of this study provide several meaningful strategic and policy implications for EV manufacturers and policymakers who wish to enhance EV diffusion. First, EV sales are significantly influenced by indirect network effects from the energy supplier side to the consumer side, and vice versa. This implies that EV manufacturers who wish to boost EV diffusion should implement a strategy providing energy suppliers with incentives to willingly join the EV platform. Second, the dynamic nature of the effects of energy costs on platform competition might render counter-intuitive evidence that the drop in oil prices does not always negatively influence EV sales. This requires EV manufacturers to prepare a contingent strategy adjusting to such unexpected conditions. Third, governments should consider the energy supplier side as well as the consumer side in designing EV diffusion policies. When governments have a very challenging EV diffusion target, a balanced policy, which treats both gasoline and electric vehicle technologies fairly, may be more effective than a consumer subsidy policy.

Brent prices and oil stock behaviors: evidence from Nigerian listed oil stocks

BackgroundGiven the shale oil glut that culminated in the most recent and continuing oil price drop from June 2014 and the global financial crisis of 2008 that triggered a cyclical downturn in oil prices and stock market activity, this study investigates the impact of Brent oil price shocks on oil related stocks in Nigeria.MethodsThis study uses a vector autoregressive (VAR) model with the impulse response function and the forecast variance decomposition error.FindingsThe empirical evidence reveals that oil price shocks have a negative impact on Nigerian oil and gas company stocks. In theory, this situation should apply to oil importing countries and is therefore uncharacteristic of an oil exporting country like Nigeria.ConclusionsThe findings suggest that oil companies operating in Nigeria should diversify their investments to protect their business from single-sector market forces, and can also embrace the advantages of outsourcing some of their operations to specialist providers to increase flexibility and reduce operating costs. Finally, for vertically integrated oil and gas companies, oil price hedging and energy risk management will be beneficial because it will mean that these companies will take a position in the crude oil futures market. This will allow for better cash flow management and flexibility.Originality/valueThis study extends the existing literature in two distinct ways. First, it provides, to the best of our knowledge, the first examination of the impact of oil price shocks on stock market activities with a focus on the market returns of oil and gas companies listed in the Nigerian Stock Exchange. Second, this study uses daily data because high frequency data contain more information than lower frequency data does, and lower frequency data average out too much important information.

Economic Exposure to Oil Price Shocks and the Fragility of Oil-Exporting Countries

From a price range between 100 and 120 USD (U.S. dollars) per barrel in 2011–2014, the crude oil price fell from mid-2014 onwards, reaching a level of 26 USD per barrel in January 2016. Here we assess the economic consequences of this strong decrease in the oil price. A retrospective analysis based on data of the past 25 years sheds light on the vulnerability of oil-producing regions to the oil price volatility. Gross domestic product (GDP) and government revenues in many Gulf countries exhibit a strong dependence on oil, while more diversified economies improve resilience to oil price shocks. The lack of a sovereign wealth fund, in combination with limited oil reserves, makes parts of Sub-Saharan Africa particularly vulnerable to sustained periods of low oil prices. Next, we estimate the macroeconomic impacts of a 60% oil price drop for all regions in the world. A numerical simulation yields a global GDP increase of roughly 1% and illustrates how the regional impact on GDP relates to oil export dependence. Finally, we reflect on the broader implications (such as migration flows) of macroeconomic responses to oil prices and look ahead to the challenge of structural change in a world committed to limiting global warming.

BOARDROOM DIVERSITY AND INNOVATION IN THE UAE BANKS

Corporate governance carries strategic importance and should be addressed correctly by decision-makers. Corporate finance literature suggests that diverse boards are a part of good corporate governance practice. However, it is not clear how diverse board characteristics might affect innovation and innovation search strategies. Utilising the data from 25 banks listed in the UAE stock exchanges, this study evaluates the impact of boardroom diversity on firm innovativeness both before and after the drop in the oil prices. The results show that although gender and education do not significantly affect innovativeness of banks, having more experienced and independent board members enhances the innovation. The effect of experienced board members on innovation is more pronounced during the oil price drop period, whereas the effect of independent board members decreases after the drop in the oil prices.

ECB-Global: Introducing the ECB's global macroeconomic model for spillover analysis

In a highly interlinked global economy a key question is how foreign shocks transmit to the domestic economy, how domestic shocks affect the rest of the world, and how policy actions mitigate or amplify spillovers. For policy analysis in such a context, global multi-country macroeconomic models that allow a structural interpretation are needed. In this paper we introduce the European Central Bank's global macroeconomic model: ECB-Global, a semi-structural, global multi-country model for the euro area, the US, Japan, the UK, China, oil-exporting economies, Emerging Asia and a rest-of-the-world block. ECB-Global features rich channels of international shock propagation through trade, oil prices and global financial markets. We illustrate the range of applications of ECB-Global in the context of policy analysis by presenting its predictions for global spillovers from a US monetary policy tightening, a growth slowdown in China, and a drop in oil prices. In contrast to many existing structural models, ECB-Global implies large spillovers from US monetary policy and oil price shocks, which transmit through trade and financial cross-border interlinkages. Compared to these shocks, ECB-Global does not imply large spillovers from a slowdown in China, primarily because of the latter's still limited integration in global financial markets. We also illustrate how ECB-Global can be modified flexibly in order to address evolving questions relevant for policy makers by adding new features in an ad hoc manner.

The paradox of the Iraqi Kurdish referendum on independence: contradictions and hopes for economic prosperity

The Kurdistan Region of Iraq (K.R.I.) experienced economic prosperity following the years of the U.S. occupation in 2003. In 2005, the region attained its semiautonomous status, and up until 2014 benefited from its constitutionally mandated share of the central budget and increased foreign investment, which came primarily from neighbouring countries. The 2014 economic downturn of the region started with the halt of transfers from the central budget, deepened with the drop of oil prices and ISIS’s occupation of Mosul, and continued with the September 2017 independence referendum. Due to the Kurdistan Regional Government’s (K.R.G.’s) reliance on Turkey’s oil pipeline for autonomous revenue, as well as on foreign companies to extract its oil and gas reserves, the region’s economic livelihood strongly depends on healthy diplomatic relations with neighbouring countries. These states, however, are directly opposed to the K.R.G.’s movement towards secession. After the independence vote, regional powers, along with Baghdad, adopted an aggressive rhetoric and implemented punitive measures towards the K.R.I., placing the economic interests of the K.R.I. at odds with its nationalistic aspirations. As the ramifications of the referendum continue to unfold, the Kurdish push for independence on a political basis subsequently threatens the K.R.I.’s economic prospects as well as the privileges that its citizens enjoyed with their semiautonomous region during the post-U.S. occupation period. Focusing on this period, this paradox is examined. The tension between independence and the economy is discussed, and avenues for synthesizing the multiple goals of the K.R.G. and its people are explored.

The Asymmetric Effects of Oil Price Changes on the Economic Activities in Indonesia

This paper analyzes the asymmetric impact of oil price changes on the economic growth of and inflation in Indonesia by using the vector autoregression (VAR) model for the period from 1990Q1 to 2016Q4. The results show that the impact of oil price changes on the gross domestic product (GDP) is asymmetric, as a drop in oil prices decreases the GDP, whereas an increase in oil prices does not significantly affect GDP. It is crucial for Indonesia to reduce its dependency on oil, mainly as its primary source of revenue, and also consider utilizing more sources of renewable energy. At the same time, the effects of both the positive and negative changes in oil prices are found to be not statistically significant to inflation. The lack of impact of oil price changes on inflation can explain by the implementation of the fuel price subsidy in Indonesia.DOI: 10.15408/sjie.v7i1.6052

The labor market in Norway, 2000–2016

Norway has a high labor force participation rate and a very low unemployment rate. Part of the reason for this fortunate situation is so-called “tripartism”: a broad agreement among unions, employers, and government to maintain a high level of coordination in wage bargaining. This has led to downward real wage flexibility, which has lessened the effects of negative shocks to the economy. Reduced net immigration, especially from neighboring countries, has also mitigated the negative effects of the recent drop in oil prices. A potential drawback of this tripartism is, however, the difficulty of reducing employee absences and disability.

The dynamic relationship between oil prices and returns on renewable energy companies

The aim of this paper is to apprehend the behaviour of returns prices of renewable energy companies and their co-movement with oil prices before and after the 2008–2009 global financial crisis (GFC). Using daily data set over the time period from November 2003 to March 2016, we apply TGARCH-based-Vine copula model to examine tail dependence between oil prices (WTI) and three renewable energy indices. The results provide evidence of symmetric tail dependence for all sample, indicating the evidence of upper and lower tail dependence. However, during the crisis period, our findings reveal that the lower tail dependence for WTI and renewable energy returns prices is practically larger than the upper one. Moreover, the lower tail dependence is improved considerably in the financial crisis of 2008–2009. Therefore, the abrupt drop in oil prices (WTI) entail mainly to similar decrease in the renewable energy return prices during downturn markets.

Assessment on Structural Integrity of In-service Machine Using De-noised Vibrational Modal Data and Artificial Neural Network

The recent oil price drop creates a demand for swift action within oil and gas industry to shift focus from increasing daily production rates, to optimizing existing assets in achieving growth. Industrial machinery, one of the industry’s key asset many times failed due to high amplitude vibration that contributes to accelerated wear and tear and subsequently results in high cycle fatigue failure. As such there is a need to develop a structural integrity assessment for in–service machinery for continuous and safe operation. Vibration–based method such as Experimental Modal Analysis (EMA) is widely used for damage detection on civil and piping system under stationary environment. However, in industrial applications, system shutdown is very costly. EMA is also undesirable in this case due to the dominant ambient and system disturbances on the in–service system. An alternative method called Impact-Synchronous Modal Analysis (ISMA) is developed to perform modal analysis under noisy environment. Applying the ISMA technique in de-noising the non–synchronous disturbances at upstream could generate a cleaner and static–like modal data downstream for analysis. Artificial Neuron Networks (ANN) is then applied extensively in structural damage identification purposes based on changes in modal data due to its excellent pattern recognition ability. By leveraging on the latest technologies, i.e. ISMA and ANN as proposed, it allows real–time monitoring of assets, in this case, the machines, as well as the ability to transform continuous streams of data into useful information to predict damages.

Asymmetric impact of oil price on Islamic sectoral stocks

This paper extends the literature concerning non-linearity in oil-stock relationships by putting forward a new paradigm of sectoral and Islamic elements. We explore the asymmetric impact of oil price on Islamic stocks from a sectoral perspective using non-linear Autoregressive Distributed Lag cointegration methodology. The main advantage of this methodology relies on its ability to simultaneously capture the short- and long-run asymmetries through both positive and negative oil price shocks. Our results show weak linkages between oil price changes and the Islamic composite index. However, the nature and sensitivity of the reaction of stock prices to oil price shocks vary considerably across different sectors. In the longer horizon, the relationships between oil price and many Islamic sectoral stocks tend to follow a nonlinear pattern. Furthermore, the behavior of the real economic sectors indices reflects the performance of the composite index that is oil price-resistant. During the turbulent period after 2008, the response of the sectoral indices to oil price movements witnessed notable changes where the sectoral gains from oil price drop that have been observed during the period of study have been found to diminish after 2008. Our finding is in line with the argument that the Islamic composite index is grounded more on and within the real sectors. These findings are robust when considering different oil proxies and different data time-frequencies.

Race in the Shipbuilding Industry: Cases of South Korea, Japan and China

The shipbuilding industry is enormously important to the South Korean economy. It serves as the backbone of survivals of many other industries in Korea. The success story of the Korean shipbuilding industry is the national pride for the Korean people because it started from scratch in the 1970s and reached the world number one position in just three decades. Top Korean shipbuilders such as Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries have taken the top three ranking positions in the world as the finest and largest global shipbuilders. In the early 2000s, Korean shipbuilders were dominant enough to command nearly 40 percent of the global production in shipbuilding. Nonetheless, the situation has changed with the emergence of new competitors in the market. Chinese shipbuilders and the revived Japanese shipbuilders are now strong contenders in the industry and a threat to the Korean shipbuilders. Since 2014, the global shipping market has been hit hard with the sudden drop in crude oil price, and this change in demand tremendously affected the Korean shipbuilding industry. The Korean shipbuilding industry nearly collapsed in 2016, which prompted huge interventions from the Korean government. The unexpected changes within the shipbuilding industry shocked the Koreans. This article has two objectives. First, it aims to study what caused the sudden shift in the Korean shipbuilding industry. Second, to what extent have the Chinese and Japanese shipbuilders affected the Korean shipbuilders, and what is their current status in the global market? Ultimately, the article looks at the future faced by Korean shipbuilders due to the competition from China and Japan.

Guest Editorial: Innovation Will Drive Shale Survival

Guest editorial That which does not kill us, makes us stronger.—Friedrich Nietzsche, 1889 The petroleum industry has seen up and down cycles. In the past, they have been driven by politics, such as in the case of the Arab oil embargo, or supply and demand imbalances, driven primarily by unrest and recessions. The creation of OPEC dampened the latter. But this time it is different. Shale, a new, abundant source of oil and gas has more than halved oil prices. It has kept prices low for nearly 3 years, and threatens to do so for many more. This threat will be realized if the industry can be profitable at sustained prices below $40/bbl. History informs us that this is likely. The last long-lived drop in activity roughly spanned the decade from the mid-1980s to the mid-1990s. The rig count was more than halved from 1984 levels for well over a decade. This trailed the oil price drop, which nearly halved from 1980 to 1985, and stayed that low for over a decade. For the industry to survive, oil companies needed lower production costs and the service companies still needed to make a profit at low activity levels. This is precisely the situation today in shale oil and gas. On that occasion, the industry responded with innovation in technology and, to a lesser degree, in business models. This too will happen today. Horizontal Wells and More Horizontal wells, possibly the single greatest productivity improvement innovation in the business, came into their own during that earlier downturn. They had been known for decades, but this period produced additional key enablers for economic construction. Desktop 3-D seismic interpretation allowed for placement in the most productive portions of reservoirs. Polycrystalline diamond composite (PDC) bits improved drilling rates. Measurement while drilling (MWD) gave crucial position information on the fly. Later, MWD systems allowed formation evaluation, which was prohibitive with conventional logging methods in hole angles greater than 60 degrees. At this point, drillers knew where to be, and where they were, in 3-D and geologic space.

Airfares and oil prices: ‘Feathers and Rockets’ adjustments

One reason that the US Department of Justice is examining collusion within the airline industry may be the small (12%) decline in airfares that follows a large (57%) drop in crude oil prices. This relatively small response could be caused by three mechanisms related to the oil market; (1) slow rates of adjustment, (2) airfares adjust asymmetrically to changes in the oil market, or (3) asymmetric adjustments within the oil market that are communicated symmetrically to airfares. I evaluate these hypotheses by estimating a cointegrating vector autoregression model from monthly data and testing the error correction mechanism for asymmetry. Although small, estimated rates of adjustment indicate that the large reduction in oil prices has been passed to airfares. Tests of the error correction model do not provide evidence for asymmetric adjustments between airfares and oil market. Contrary to the relation between crude oil and motor gasoline prices, prices for jet fuel adjust faster to reductions in crude oil prices and so cannot be responsible for the relatively small decline in airfares. Although the CVAR model does not identify an oil-related mechanism that can generate the small decline in airfares relative to the large decline in the price for crude oil, this absence does not imply the converse, that airlines collude to set airfares.

Financement des pays riches en ressources naturelles : le rôle des marchés financiers et des institutions

Les questions institutionnelles mêlées aux enjeux d’accès aux marchés financiers internationaux des pays riches en ressources naturelles ont souvent été occultées dans la littérature économique. Or, ces enjeux s’avèrent de plus en plus présents dans le débat public. La finalité de cet article est de mieux comprendre comment des économies dépendantes de ressources épuisables gèrent leur dette externe, et comment les marchés financiers perçoivent leur risque souverain lors de l’émission de leur dette.

The general equilibrium costs and impacts of oil price shocks in Newfoundland and Labrador

The 2014–2015 dramatic drop in world oil prices had devastating impacts on a global scale. We analyse economic costs and impacts of a negative oil price shock following the 2014–2015 decrease in oil prices on the provincial economy of Newfoundland and Labrador, Canada. We use a Dynamic Computable General Equilibrium model to estimate a drop in oil prices by inputting the estimated effect as a direct impact to royalties, which are the land input in the oil and gas sector of the provincial economy. We provide sensitivity to account for the duration and magnitude of the shock, as well as the timing of recovery. Our results suggest that a shock in the price of oil will have its most significant impact on GDP in the initial years. Over the first five years, the reduction in GDP due to this shock would be roughly 2.1% of GDP in our most realistic shock scenario, but could be much higher in other scenarios considered. A sharp drop in GDP over the first five years will be mitigated somewhat in the long run as the growth in oil prices rises; however, negative long run impacts to GDP persist due to the oil price shock in 2014–2015, and will worsen if there is a prolonged shock.