Oil Prices Fall, and the Global Economy Wins
http://www.businessweek.com/articles/2014-09-29/oil-prices-fall-and-the-global-economy-wins#r=nav-f-story
This article discusses how prices of oil have fallen
recently, with a surprising 16% decrease since mid-June. In order to keep
prices from falling, countries like Saudi Arabia have cut down on their oil
production. This strategy has not really worked fine as in the process, countries
like Iran, Iraq, and Nigeria have increased oil production. In addition, the
record increase in US oil production because of the shale boom have caused
prices to go down as well. Although, oil prices are predicted to go up internationally
in the next six months or so, the domestic prices in the US for oil are thought
to get cheaper by next spring. That may not be great news for oil producers,
but definitely is a good news for consumers and the global economy.
One of the main reasons for this decrease in oil prices is
because of less demand and too much supply. Demand certainly could be
stronger. A stagnant economy in Europe, slower growth in China, and flat
gasoline consumption in the U.S. are all tamping down prices. According to the
International Energy Agency, the growth in the world’s demand for oil will be the
slowest this year since 2011.
But the bigger factor appears to be on the supply side, as production growth outpaces demand. That
was the case last year and is shaping up to happen again in 2014.
In Europe, for example, where policymakers are already
struggling with deflation, lower oil prices will only make the European Central
Bank’s challenge harder in loosening its monetary policy to try and boost
prices. It also might not be good news for some big oil-producing economies. While
Russia and most of the Middle East will be able to weather lower prices,
countries such as Brazil, Mexico, and Venezuela will be hit harder, primarily
because they have not been saving much of their oil windfalls.
This sounds like great news for the U.S. but could be bad for the middle east
ReplyDeletewho rely on oil revenues for government spending. I remember when I was paying almost 5$ a gallon in California and it has slowly been dropping but not down to a near 3$ yet like OH
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ReplyDeleteI think it will be interesting to see if global oil prices remain low as ISIS gains more economic and political control or if the high oil supply and low oil demand will cancel out any economic impact that ISIS may have.
ReplyDeleteIn terms of the impact of the global drop in prices of oil the middle east would certainly be effected, however; the article makes a very good point as to the impact on South American countries who have not been saving their oil windfalls compared to other major oil producing parts of the world.
ReplyDeleteI think that the greater amount of supply is the major factor in the price drop of oil, I can't really see how consumption has really dropped all that much that it really made any kind of impact on the price. But now that the price is dropping, I do agree with what was said in the article, that the US economy would benefit from this, especially now that we are getting to that time of the year where there is a major Holiday every month. This means more traveling, more shopping, more cooking, more everything, plus with it getting colder, electric bills will increase, but it won't be that big of a deal because many homes are heated with gas. People will now be able to afford it with ease. I don't see the drop in the price of gas as a problem for the US.
ReplyDeleteTo Middle East, this is really horrible. Since one country decides to cut production when others raise it, that country will not be beneficial compared to other countries, since we have incentive to like buying cheaper price. Therefore, it may cause the others to raise the price, and our economy will be affected by this changes.
ReplyDeleteLower oil prices are great for an economy such as ours. The money people would normally be spending on gasoline can now be used to consume other goods and services in the market.
ReplyDelete