Across the board, oil prices are dropping lower than we've ever seen. Reaching below $30 per barrel for the first time in over 12 years, oil prices are having profound effects on the global economy. In the Middle East, a region known for its outstanding oil production and capacity, the wealth of the majority of its countries has long been thriving on the ability to control most of the western world's supply of oil. However, with the United States' oil production nearly doubling over the past few years, foreign oil that once came to America now needs to be relocated to new markets with reduced prices.
The nation of Iran has been under international sanctions on its oil production for a decade due to its nuclear program. During this time, other oil-producing nations were able to enjoy a market with fewer suppliers and ever-increasing demanders. However, demand may be seeing a turn as more and more vehicles are moving to more energy-efficient means. And with an added player in Iran, the already full market will become flooded with more oil, potentially dropping barrel prices below their already-historic low.
The question remains: How will oil-producing nations cope with the drastic drop in prices? For over 40 years, the Gulf nations have thrived upon energy exports to support their markets. And for now, there is no answer. This past week, every major stock index in the Middle East (except for Tehran) fell, with governments continuing to cut benefits that citizens have enjoyed for years.
Looking abroad, we've already seen how reduced oil prices have affected global markets. With the addition of Iran, we could be seeing even further historic lows in an already pessimistic global economy. How will Middle Eastern nations cope with reduced incomes from oil? Will they be able to recover from dropping prices? What effects will this have beyond the Middle East?
Link: http://www.bloomberg.com/news/articles/2016-01-17/iran-to-make-life-worse-for-gulf-rivals-tormented-by-oil-slump
It will be interesting to look into oil producing companies in the near future. A recent article on the Wall Street Journal talked about companies on the verge of filing for bankruptcy. There are so many factors that have caused this concern. Morgan Stanley and Goldman Sachs both cut oil prices into the $20 dollar range because of the Chinese market. It is concerning that the Chinese market, not a main oil producer, can cause oil prices to change. With the world economy struggling at the moment and oil prices falling the two are working together to cause a significant problem for the economy, and specifically oil companies facing big problems.
ReplyDeleteWith the market the way it is currently looking now, this is a rather interesting time for Iran to reenter in the production and exporting of oil. According to an article in the Wall Street Journal, some analysts believe that the reentry of Iran will cause prices to fall further, while others think that the worst has already passed. Since the Iranians are aware that they are entering the market at such a time, officials say they are looking for ways to be more competitive by creating special relationships with nations with oil-for-goods bartering. Furthermore, Iranian officials are even looking to expand more refineries in India, Brazil, and Spain. At this point, it is hard to tell exactly what kind of outcome Iran will have on the world, but if they intend to be as competitive as officials have offered, there may be an even lower drop in oil due to such a high supply.
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