Oil price drop and GCC new car registrations

This article is the first in a series on the impact of energy costs on car retailing in a dynamic automotive world.   Oil Prices impact on car sales so, for once, the tabloid headlines are more or less accurate: since mid 2014 up until the present (July 2017) oil prices have halved while overall production has been constant. All of OPEC's attempts at production restraint to support crude oil prices have been frustrated by either non-OPEC members unwillingness to risk losing market share or the exports of US-based 'frackers'. OPEC seems to be caught in a bind: if they cut production to raise prices, they bring more US shale rigs back into production because the oil price moves above their marginal cost of production. If they don't cut production, the price falls and they lose money in a fight for market share. In any event cost-cutting technological innovations have enabled shale producers to reduce extraction costs rapidly over the last few years. According to Wood Mackenzie, the oil analysts, only 4% of the worlds oil output is unprofitable at $35 a barrel because shale oil wells have reduced cost by around 40%. Their conventional counterparts by only 12% on average. 'Frackers' might not make much money but, at least, their cash flow covers their debt repayments so they continue in operation. The Wood Mackenzie figures are in line with a report from Citibank in December 2016 showing that the amount per barrel that most producers needed to receive just to keep the lights on, referred to as the cash cost point, was well under $30. The downward pressure on oil prices has been triggered by a range of factors - some of which are structural and enduring: extra production from shale oil, the Iran Nuclear deal, the strengthening US$ and sluggish global demand. …

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