This article analyzes the impact of the decrease in price of oil to $27 a barrel from $110 a barrel. It represents one of the biggest questions of macroeconomics by analyzing the benefits for the consumers and the losses for the producers.
The article addresses the long-term impact of this fall in oil prices, citing the decrease in oil exploration as one of the major drawbacks because the current price of oil does not justify even large, multinational companies going into remote areas like the Arctic to search for newer sources of oil.
Moreover, the article examines the impact of fall in oil prices in oil-importing countries like India and South Korea because it gives them a chance to divert funds to renewable energy options, whereas for oil-exporting countries like Venezuela, Saudi Arabia and Russia, the governments will need to cut spending to ensure that their trade deficit does not become a big proportion of their GDP. (This is especially interesting in the context of Russia, which is already facing economic problems as well as a fall in the value of the ruble)
Finally, this fall in oil prices may be a warning, according to some economists, that the already volatile world economy may not be entirely on the path of recovery and could face more problems in the near foreseeable future.
http://www.economist.com/news/leaders/21688854-low-energy-prices-ought-be-shot-arm-economy-think-again-whos-afraid-cheap?spc=scode&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709
I am curious about how countries that are heavily dependant on exporting oil can move to different sources of revenue quick enough to avoid potential long lasting damage to their economies due to the current drop in prices. It seems impossible but what do you reckon the alternatives are?
ReplyDeleteI believe the change has to be long-term, the adverse effect of oil price declines is dependent on the level of diversification that already exists in their economies, some have a mildly higher level of diversification which may act as a buffer, but others don't.
ReplyDeleteI don't know if short-term weakening of the economies is entirely unavoidable, considering the statistics about the rise in Russia's deficit have already been published and other countries are likely to follow suit, to some degree.
I am afraid lower prices in oil will distract consumers from seeing the cost it requires to get lower oil- as cited above exploration by MNCs in the artic and other places.
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