SimonPeters2020:
I just bought $1.77 per gallon this evening, so cool uh?

Damn! Do u live in the Mid-west?

CFCman:

Damn! Do u live in the Mid-west?

Nah, Mid-Atlantic region (Maryland)

SimonPeters2020:
Nah, Mid-Atlantic region (Maryland)

I see.
Here, gas prices averaged over $3 in the last 6 years, before last Fall

Omotaday:
is US an oil producer/exporter?

Yes, US produces and exports oil; and US is not a member of OPEC. As at 2016, OPEC only have 13 member states and in total, they made of about 40% of global oil production.

The other 60% of global oil producing/exporting states does not belong to OPEC, do not be deceived by the name OPEC, as it supposes that all Petroleum Exporting Countries are members, which is not true. Same with NUT - National Union of Teachers, not all teachers in Nigeria are in that Union.

the uae caused this oil crisis back at the 70s,its funny how the past can influence the future

Well it will be difficult to frustrate the US because everyday they are deploying technology to enhance the shale oil making it even cheaper, of which Weatherford is the fifth oil fracture technology in the US.Gas prices go with oil, which is gas to gas indexation. But by n large the Oil price will come up but not for now.just that our country Nigeria never plans for the raining day.always unaware of the looming situation.

The shale oil and gas is gotten from horizontal drilling in the deep high pressure formations.

Abeg informed me when the oyil drop to 1dollar a barrel so I can open my own refinery.... Buhari is finished

snailspeed:


I no vex bro. I just responded to Omenka's claim that the last government did not save and Buhari would have saved the planet. You know he and his kind have a fixed answer to everything: the last government!

This thread can be informative at best. It isn't going to come up with a solution to the oil crisis. The prices will keep going down and the consequences will be far worse than many might imagine. There will be another global recession. Many countries in Europe and the mideast will go burst like Greece. The only thing that can give us a little succour if we act now is true federalism. The Nigerian structure as it is is flawed and can never produce a 21st century robust country

the North will never accept the concept of true federalism. They would prefer to say that true federalism was destroyed by aguiyi ironsi and that's where it ends.........if we had true federalism in place, it would boost the economy and speed up development process......but some people do no want others to take their destinies in their hands

PBundles:


As for the Naira, this will fall further and I see a N/$ at 400-450 at year end. I would explain how I go to that, but will spare you my boring calculations.

Bevista:
Indulge me. I love boring calculations.

Ok I will

As you are aware there are 3 main ways to predict the future FX rate, PPP (Ie Big Max Index) relative eco strength and an econometric model.

The first one is problematic as its hard to get a product that one could compare for parity for many reasons which I don’t want to get into as i would be writing a novel.

The second is a bit easier as it uses growth and foreign investor measurements, but I prefer and used the last method, a simple econometric model, which took the following into consideration:

Int rates (CBN)
GDP actual and projected
Income growth ( I kept at par)

I derived the attached model, which is not written in stone and I admit has its flaws and this is not an exact science (way to many variables), but i don’t think Im that way off. In short if the CBN maintains is current policy towards the banks and Bureau de change and all US FX window transitions the official rate at the bank should be around 262.73 – 304.15 ( see the arrow on the graph). When you transpose that against the black market rate, which in all fairness I think is the more accurate rate to use, I get rate of 469!. At the more conservative end I got 379 (using a 33% rate against the official bank rate). FYI at this moment the market is translating it at approx 50% (official 199 to black market at 300). Im a firm believer that market (in absence of arbitrage factors) determines the price. So between 379 and 469 is the range, mid at 424. I tend to think it will be anywhere above 400.

There is a caveat, OIL. The above is when Oil price is at a constant a.o..

Do i get a passing grade? Its been more than 15 years since grad school, im now used to grading papers, but now anxious like my bussienes school students I teach at night school.

would be nice to book mark this around dec 2016 and see what it is. We usually wager bottles of wines here, do I have a taker

linearity:


Most government policies are implemented not to turn profit, majority of them are done to keep the economy going and to maintain peace and order e.g. The Nigeria Police does not turn profit for the federal government, but it is a necessary institution to maintain order in the larger society.

If the government stop producing oil because, it no longer can turn profit, imagine thousands of people who will be jobless and the cascading effects to the larger society. Imagine the decay that will start taking hold in all oil infrastructures around the country, which will cost more, should we try to restart their use in the future. Imagine the amount of money that will be sucked out the economy and society. Also if we stop producing oil, what happen to the array of oil derivative products that our daily lives have come to unconsciously depend upon with no sustainable alternatives?

I can go on and on, but I believe that, you get the drift.

I'm sorry but I still don't get your drift, should a company continue to do business when its established knowleddge that you re makingg losses daily? How do u pay workers when you make losses daily? We can extract oil to sell amongst ourselve but for export purpose, its no longer economically viable for any oil coy to continue doing business @ 20$/barrel in Nigeria

PBundles:
Ok I will

As you are aware there are 3 main ways to predict the future FX rate, PPP (Ie Big Max Index) relative eco strength and an econometric model.

The first one is problematic as its hard to get a product that one could compare for parity for many reasons which I don’t want to get into as i would be writing a novel.

The second is a bit easier as it uses growth and foreign investor measurements, but I prefer and used the last method, a simple econometric model, which took the following into consideration:

Int rates (CBN)
GDP actual and projected
Income growth ( I kept at par)

I derived the attached model, which is not written in stone and I admit has its flaws and this is not an exact science (way to many variables), but i don’t think Im that way off. In short if the CBN maintains is current policy towards the banks and Bureau de change and all US FX window transitions the official rate at the bank should be around 262.73 – 304.15 ( see the arrow on the graph). When you transpose that against the black market rate, which in all fairness I think is the more accurate rate to use, I get rate of 469!. At the more conservative end I got 379 (using a 33% rate against the official bank rate). FYI at this moment the market is translating it at approx 50% (official 199 to black market at 300). Im a firm believer that market (in absence of arbitrage factors) determines the price.

There is a caveat, OIL. The above is when Oil price is at a constant a.o..

Do i get a passing grade? Its been more than 15 years since grad school, im now used to grading papers, but now anxious like my bussienes school students I teach at night school.

You professionals have a way of making mere mortals like us look so ordinary... Just Kidding!
---
Truth be told, beyond PPP, I am not familiar with with the other models you referenced there. Can you give me a good reference to learn about the last model you used in your analysis? Or maybe can you post an extensive lecture here on the subject for me to read?
---
On a side note, with such technical depth in that analysis, you should not be teaching, you should be working in CBN.

My esteemed Bevista, thanks for the compliment, Im humbled. I have seen your works on here too and im impressed with your depth of knowledge. I teach business at a business school in europe and work in IB at an american bank

On PPP, this will be easier when we get a McDs in Nigeria, simply using the Big Mac index and factor in some other variables.

There is a lot of info on the other two, though the manner its explained is not always clear.

Relative eco strength goes by the principle, if you have a growing economy investors will want to BUY your currency in order to do business. I find this hard to use with exotic currencies that have extreme variances.

The model I used goes on the notion :
interest rate ( what the rate at CBN) minus the actual inflation rate tells me the rate at which the currency is appreciating or deprecating. Hence highlight a common mistake made by consumers when they see high interest rates at banks. If they are giving you say 15% which seems high and the inflation is say 20%,you have actually lost money. The rate of this depreciation is what I used.

I factored in GDP, projected of course and income growth I simply took it at par. Oil is the joker here. Of course you can take other variables into consideration, but didnt see them having that much of an effect.

I will see if I have a PowerPoint somewhere and if I do i will post it.

Truth be told, Im sure (at least i hope) that the CBN has in house folk that can replicate this. I think that the CBNs biggest problem is not analyzing, but the ability to carry out an INDEPENDENT program, void of Politics, thats the problem. Most CBN chiefs are more than capable, no doubt, but when they also have to satisfy the President and his party, it get very very difficult and is a very slippery slope you nor I could walk without falling, hence at times their actions look amateurish. That why all over the world most Government Bank heads are are not allowed to be partisan, only of course in our beloved Nigeria where they say they are not, but are not.

Point at hand, free floating the Naira, everyone in their rightful (economic) mind knows the Naira should free float. They dont have the capacity to continually indirectly subsidize it. I get the feeling though they the CBN has no other choice and will tell the president, sir we need either set the fixed rate much higher ( which is simply a postponement of execution) or free float.

Bevista:
You professionals have a way of making mere mortals like us look so ordinary... Just Kidding!
---
Truth be told, beyond PPP, I am not familiar with with the other models you referenced there. Can you give me a good reference to learn about the last model you used in your analysis? Or maybe can you post an extensive lecture here on the subject for me to read?
---
On a side note, with such technical depth in that analysis, you should not be teaching, you should be working in CBN.

You would be surprised how many government owned/operated business dont generate money. The aimmay be a social one and not neccesrily for profit (ie schools of higher learning).

On the oil, I dont think IMHO that its the cost to extract that is the problem. I would think that the cost to extract in Nigeria would not be that high, though we are not very good at maintaining things, so our rigs and drilling plants could be more efficient, but lets set that aside for now. The thing is our budget was done on a higher oil price, so in short we are making a gross profit per unit, BUT.........the bottom line is not enough.

Chukzyfcb:


I'm sorry but I still don't get your drift, should a company continue to do business when its established knowleddge that you re makingg losses daily? How do u pay workers when you make losses daily? We can extract oil to sell amongst ourselve but for export purpose, its no longer economically viable for any oil coy to continue doing business @ 20$/barrel in Nigeria

PBundles:
You would be surprised how many government owned/operated business dont generate money. The aimmay be a social one and not neccesrily for profit (ie schools of higher learning).

On the oil, I dont think IMHO that its the cost to extract that is the problem. I would think that the cost to extract in Nigeria would not be that high, though we are not very good at maintaining things, so our rigs and drilling plants could be more efficient, but lets set that aside for now. The thing is our budget was done on a higher oil price, so in short we are making a gross profit per unit, BUT.........the bottom line is not enough.

You have made very good points, yes if drilling & rig maintainace are efficient, cost of production should lower.. However, you cannot say we are making GROSS PROFIT where our budget is set @ Higher oil price to function.
We would actually be @ DEFICIT, & will require borrowing to complement that deficit. And if some govt business don't operate at certain times for profit based but simply for a social factor as u'v stated. Then, I think it means the job security of every staff in that establishiment hangs on the line. Overtime, lack of sustainability could lead to massive job cuts!

I think you are confusing the two terms (gross profit and deficit). We certainly make a gross profit from oil, but our BUDGET is at a deficit.

Yes its a fact that certain areas of government run at a loss. The fact that they DONT need to make or show a profit makes them inefficient, hence you will notice that when certain government enterprises are sold off (privatization) , miraculously they all of sudden can show a profit. Of course, because it will be run as a business and so certain factors will be properly managed. Everyone knows the civil service is over staffed, but you cant privatize ever facet. In terms of job security, as strange as this may sound, the risk is less, remember, its not a business. the next year one can simply ask fro a higher budget allocation. This luxury a private business doesnt have,mind you.

Chukzyfcb:

You have made very good points, yes if drilling & rig maintainace are efficient, cost of production should lower.. However, you cannot say we are making GROSS PROFIT where our budget is set @ Higher oil price to function.
We would actually be @ DEFICIT, & will require borrowing to complement that deficit. And if some govt business don't operate at certain times for profit based but simply for a social factor as u'v stated. Then, I think it means the job security of every staff in that establishiment hangs on the line. Overtime, lack of sustainability could lead to massive job cuts!

Chukzyfcb:


I'm sorry but I still don't get your drift, should a company continue to do business when its established knowleddge that you re makingg losses daily? How do u pay workers when you make losses daily? We can extract oil to sell amongst ourselve but for export purpose, its no longer economically viable for any oil coy to continue doing business @ 20$/barrel in Nigeria

You are wrong when you compare nations to companies that engages in endeavor just to make profit.

There are are far reaching objectives that make countries to render some services and goods and making profit is the lest of their worries.

Amtrak is the largest train service in the entire United States, but except for the North East corridor, Amtrak returns record looses each year, but the government subsidies their operations that is essential for the survival of the US economy, which is alternative to mass movement of people and goods.

Note that, it is not economically viable for Nigeria to extract just enough oil to satisfy local consumption, because the proceeds from those local sales will not sustain the cost involved. It is like building a filling station to servers a whole city but later convert it to supply fuel just enough for one car's need, unless off course Nigerians want to start paying astronomical price for fuel, and other oil based products to the tune of writing of cost of production

PBundles:
My esteemed Bevista, thanks for the compliment, Im humbled. I have seen your works on here too and im impressed with your depth of knowledge. I teach business at a business school in europe and work in IB at an american bank

On PPP, this will be easier when we get a McDs in Nigeria, simply using the Big Mac index and factor in some other variables.

There is a lot of info on the other two, though the manner its explained is not always clear.

Relative eco strength goes by the principle, if you have a growing economy investors will want to BUY your currency in order to do business. I find this hard to use with exotic currencies that have extreme variances.

The model I used goes on the notion :
interest rate ( what the rate at CBN) minus the actual inflation rate tells me the rate at which the currency is appreciating or deprecating. Hence highlight a common mistake made by consumers when they see high interest rates at banks. If they are giving you say 15% which seems high and the inflation is say 20%,you have actually lost money. The rate of this depreciation is what I used.

I factored in GDP, projected of course and income growth I simply took it at par. Oil is the joker here. Of course you can take other variables into consideration, but didnt see them having that much of an effect.

I will see if I have a PowerPoint somewhere and if I do i will post it.

Truth be told, Im sure (at least i hope) that the CBN has in house folk that can replicate this. I think that the CBNs biggest problem is not analyzing, but the ability to carry out an INDEPENDENT program, void of Politics, thats the problem. Most CBN chiefs are more than capable, no doubt, but when they also have to satisfy the President and his party, it get very very difficult and is a very slippery slope you nor I could walk without falling, hence at times their actions look amateurish. That why all over the world most Government Bank heads are are not allowed to be partisan, only of course in our beloved Nigeria where they say they are not, but are not.

Point at hand, free floating the Naira, everyone in their rightful (economic) mind knows the Naira should free float. They dont have the capacity to continually indirectly subsidize it. I get the feeling though they the CBN has no other choice and will tell the president, sir we need either set the fixed rate much higher ( which is simply a postponement of execution) or free float.

Thanks boss for the lecture. Insightful as always. If the power point you mentioned comes in handy, I'll be looking forward to seeing its contents.

Sorry for responding much later. Best of luck bro.

Sir, I sent you a pm. I just started my career in supply chain management, can I ask you few questions if you do not mind??

PBundles:
That is the expectation, but I think that the actual amount maybe smaller. You see the Iranians were selling their oil, via trucks within their region, yes even during the sanctions. This is well documented. Thus the actual impact may not be that much. The main issue are the reserves and most importantly the Saudi standpoint. You see the Saudis wanted to destroy the Shale oil production by making it costly. They hoped that buy over supplying and pushing the price down they would drive Shale producers out of business. That has backfired a bit. Also note that US has started to become a net oil exporter for the first time in many years and China growth is slowing so less use. Yes we could see as low as $25.

As for the Naira, this will fall further and I see a N/$ at 400-450 at year end. I would explain how I go to that, but will spare you my boring calculations.