Low oil prices, the good, the bad and the truth
The
continue decline of oil prices is an issue of international concern not only to
me but also to the entire community of oil producing countries. At first glance
the drop in price is a good thing to the immediate consumer, enjoying extremely
low gas prices. Gas stations are maintaining an average gas price of around $2, however, some stations in Texas have sold as low as $1.40 dollars per gallon
which. For the consumer each opportunity to save money is always welcome, these
extremely low prices present an opportunity to increase the amount of money
saved from gas to invest in other areas, this in turn can a have a positive
effect in the economy because other business other than oil can experience a
small increase in the sales. I a costumer can save up to $700 from gas
an invest that in grocery shopping say in Walmart, that means more business to
the chain of hypermarkets which could create more jobs and benefit communities
where the multinational retail corporation that operates. This is a very
limited image of the effects of low oil prices, reflecting more saving at
consumer level, potential increase in sales for local companies, generating new
jobs and potentially expansion of specific businesses.
On a Global scale the reduction of oil prices is hurting the economy, especially that of countries that rely on oils exports for increasing their GDP as well as those who supply producing companies. In North America, the decline has forced more than 40 companies to declare bankruptcy as of January 2016 and reason behind this is that these companies that relied primarily on oil sales to stay afloat, lost their source of revenue. Some of these companies have thousands of employees which are just going straight into unemployment, this expected rise in unemployment will in its turn put pressure on the government, measures will be necessary to replace those jobs and minimize the immediate negative impact to the economy.
The reasons behind the decline are mostly political, one hand the USA wants to slow down Russia by flooding the market with oil generated from shale oil, on the other hand, Saudi Arabia and Oil Cartel would not limit production, similarly, Russia hasn’t changed its output production while relative slow growth of China’s economy has reduced the demand for oil; the combination of all the factors highlighted has created a situation in which there is more oil supply than demand, in economy this creates competition which in turn opens the market to choices and ultimately lower prices. Furthermore, the Iranian nuclear deal with the USA allows forecasting more oil coming to the global markets from Iran through the lifting of the USA sanctions against Iran, this is good news to Iranians but bad news to oil producers.
One would expect that low prices would mean good news, unfortunately for the world they are not, low oil prices do more harm than good, and the evidence is the hit that the global economy has taken. Inflation has reached two digits in some African countries, for the first time in years, the Kingdom of Saudi Arabia has taken financial measures to restrict expenditure in order to prepare for worse days, at home, everyday oil drillers are finding it more difficult to convince investors that drilling for oil at such a low price can be profitable. Wall street annalists predict that unless there’s a trend in the declining trend of oil prices, the global economy will suffer, taking some countries years and years to find alternative sources of money to stay afloat.
On a Global scale the reduction of oil prices is hurting the economy, especially that of countries that rely on oils exports for increasing their GDP as well as those who supply producing companies. In North America, the decline has forced more than 40 companies to declare bankruptcy as of January 2016 and reason behind this is that these companies that relied primarily on oil sales to stay afloat, lost their source of revenue. Some of these companies have thousands of employees which are just going straight into unemployment, this expected rise in unemployment will in its turn put pressure on the government, measures will be necessary to replace those jobs and minimize the immediate negative impact to the economy.
The reasons behind the decline are mostly political, one hand the USA wants to slow down Russia by flooding the market with oil generated from shale oil, on the other hand, Saudi Arabia and Oil Cartel would not limit production, similarly, Russia hasn’t changed its output production while relative slow growth of China’s economy has reduced the demand for oil; the combination of all the factors highlighted has created a situation in which there is more oil supply than demand, in economy this creates competition which in turn opens the market to choices and ultimately lower prices. Furthermore, the Iranian nuclear deal with the USA allows forecasting more oil coming to the global markets from Iran through the lifting of the USA sanctions against Iran, this is good news to Iranians but bad news to oil producers.
One would expect that low prices would mean good news, unfortunately for the world they are not, low oil prices do more harm than good, and the evidence is the hit that the global economy has taken. Inflation has reached two digits in some African countries, for the first time in years, the Kingdom of Saudi Arabia has taken financial measures to restrict expenditure in order to prepare for worse days, at home, everyday oil drillers are finding it more difficult to convince investors that drilling for oil at such a low price can be profitable. Wall street annalists predict that unless there’s a trend in the declining trend of oil prices, the global economy will suffer, taking some countries years and years to find alternative sources of money to stay afloat.
Wow...., and here we are thinking that these low prices are only a good thing. The macro and micro viewpoints you give lay it all out, and it makes sense to me. Its simple mathematics, and an econ lesson...supply and demand, cause and effect....undercutting... Time to wake up the people at the pump. There is a choice to be made, an who will make it?
ReplyDeleteThanks for the comments. The information only empowers us to the point of making informed decisions; the choices on the other hand are really taken out of our hands, now they're really made my our leaders which is why we have to exercise wisdom choosing them.
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