OPEC is closing in on a deal to cut production,
which will surely cause oil prices to rise. Oil is already almost back to $50
per barrel, so cuts of nearly 1 million barrels per day could boost prices well
into the mid-$50s, even up towards $60 per barrel. That will provide a windfall
to oil producers around the world and the sacrifice for OPEC members will be more
than paid for by higher revenues. For example, Iraqi officials say that for
every $1 increase in the price of a barrel of oil, their revenues jump by $1
billion per year.
As a result, the odds of rising crude oil prices are
high. But while that could be welcomed by the industry, consumers might not be
as excited to see cheap gasoline disappear. After all, U.S. motorists have
enjoyed two years of incredibly cheap fuel. Will rising oil prices put a dent
in already tepid U.S and global economic growth?
Goldman says that the surplus in savings outside the
U.S. ballooned from $1 trillion to $7 trillion between 2001 and 2014, pushing
up asset prices. Of course, that can also have a darker side – asset bubbles in
commodities as well as housing also led to widespread financial ruin.
All in all, the research from Goldman Sachs suggests
that, while it may not be obvious to individual consumers who see higher prices
at the pump, there could be a boost to the global economy in the coming months
if oil prices rise.
http://www.usatoday.com/story/money/business/2016/11/26/economy-oil-prices-goldman-sachs/94431546/
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ReplyDeleteConsumers might react to increasing oil prices by reducing consumption and demand. This is because they could shift to liquefied and compressed natural gas for fueling their vehicles, or increase their incentive to use public modes of transportation. If consumers shift to public modes of transportation and the demand for oil imported decreases, this would affect OPEC. As mentioned, increasing price by $1 would increase revenue by $1 billion, but a higher prices indicates that their exports would be demanded less, thereby affecting their overall production and revenues.
ReplyDeleteEarlier when I read a similar article I was more against OPEC's plan to reduce production because I worried about increases in gasoline prices due to higher oil prices. But now with these facts, I think a little rise in gasoline will be well worth all the benefits of OPEC's plan. Also, when you think about it, an increase from near 50 to say 60$ a barrel of oil isn't a whole lot if you compare it to times when a barrel of oil was $150. The revenue increase for oil industries doesn't even increase by a large sum. If revenue increases $1 billion per $1 dollar price increase, then it's only an increase of $10 billion which is a small amount compared to current revenues for example, Exxon Mobil makes more than $269 billion and Sinopec at more than $455 billion.
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