The paradox of plunging crude oil prices 0 Interestingly, the crude reality of plunging world crude oil prices has stunningly crystalized two groups of nations or industries, and sometimes consumers impacted by the trend. On one hand, there are elated winners comprising of nations and individuals who are benefitting due to the precipitous decline in world crude oil prices. In fact, this group benefitting from the phenomenon some nations detest, probably yearn for a permanent low prices of oil. In contrast, there are deflated losers who depend on an unrelenting skyrocketing world oil prices for their economic and political clout—a power they cannot wield, especially in the world stage, in the absence of sustained high prices. Obviously, countries that import crude oil are relishing the plunge in prices of the commodity in the international market. Most importantly, with crude oil currently trading below $50 in the world market, the net importers of the commodity benefit significantly from the declining oil prices because the phenomenon produces stash of savings to the countries, thus pumping more money into their economy—money that would have been spent on energy. These countries can now use the savings from low oil prices on other programs and projects that can grease the wheel of their economy for an accelerated economic growth. For now, however, the negative impacts of high oil prices on the economy of these countries are tapered with the cheapness of oil, thus, providing these countries with rare opportunity to invest the windfalls in areas they are needed most. Consequently, net importers of oil such as China, Japan, and South Korea, as well as other countries that subsidize energy cost for their citizens are benefiting from the significantly reduced prices. However, it remains to be seen how buoyant the economies of these countries will be in 2015 and subsequent years as a result of the savings from plummeted oil prices. The sagging oil prices has definitely brought cheers to the United States consumers for the gain at the pump. Consumer are experiencing falling gasoline prices with a substantial amount of savings. It takes much less these days to fill the tank at the pump leaving consumers with a discretionary income to spend on other items. Similarly, the sales gas guzzling automobiles have appreciatively swollen because of cheap gas thereby significantly increasing the revenues of auto industry in the United States. Undoubtedly, while plummeting crude oil prices appreciatively brought relief to the consumers in form of increased spending power, it has brought tears for the oil industry, oil-producing states in the United States, the Organization of Petroleum Exporting Countries (OPEC), and other supplier of oil for the pain of losing substantial revenue and consequently budget shortfalls. If oil prices hover around $50 per barrel for a sustained period of time, the negative impact on the supplier countries would be humongous. However, it would affect the countries differently; some countries will be able to withstand the losses in revenue better than others. The countries that have accumulated large foreign reserve will be able to weather the storm in the short run. For instance, Kuwait, Saudi Arabia, and the United Arab Emirates are poised to make necessary adjustments with minimal disruption in their economy because of their structural economic positions. Though countries that have significant foreign exchange reserve may be able to adjust relatively well, those enshrined in bifurcated economies with little savings will be mired in borrowing to make up the budget shortfalls arising from the declining revenue from oil. Furthermore, the countries that will be adversely hit the most will be the ones that rely heavily on oil revenue for their national income and with less foreign exchange reserve accumulation. The countries that fall under this group may suffer crippling economic problems if the oil prices are not reversed in the near future. In any case, Algeria, Libya, Venezuela, Russia, Iran, Iraq, and Nigeria are likely to suffer the most if the bleeding continues in the world market since crude oil exports account for 70% to 95% of their foreign exchange earnings. The economies of these countries will likely stagnate with a sustained low price of crude oil. The currencies of these countries will weaken against strong dollar thereby setting a stage for inflation. Oil companies will suffer the same fate as the oil-producing countries. The crashing oil prices will impact negatively their revenue, as well as slowing down future oil explorations. Investments oil-related technologies will be reduced in every facet of their operations. In the same token, some oil-producing states in the United States such as North Dakota and Texas will eventually feel the impact of the falling oil prices. With sustained crashing prices of oil, the oil revenues to these states will dwindle to the extent that other programs may be affected. The difference between these states and some oil-producing countries is that the economies of Texas and North Dakota are more diversified than the oil-supplier countries. Additionally, Texas’ economy has resilient structures that will help it to absorb the economic shock from the low oil prices. Well, In the face of dwindling oil revenues due to plunging world crude oil prices, Nigerian policymakers have to be burning the midnight oil grappling with immediate and long-term policies that ameliorate the situation. Meanwhile, the falling Naira rate is being felt by those Nigerians in the Diaspora who have Naira account. If the currency continues to fall, many Nigerians will look elsewhere for investment options to stave off further loss of earnings. Source: Sun News
Posted on: Thu, 08 Jan 2015 15:55:04 +0000