Dropping Oil Prices – Winners and Losers

images-2For the first time in four years, global oil prices have been falling steadily. At present, it has dipped to $48 per barrel after years of prices over $100. And there are no signs of prices increasing in the near future, which may lead to substantial revenue deficits in various energy exporting nations.

One of the main reasons for the decrease of oil prices is that there is sufficient oil in the world market. Saudi Arabia, the world’s major oil producer has tried to alleviate the prices by reducing the oil output, however other OPEC members have responded adversely by increasing the oil output.

Another reason for the fall in oil prices is surging US production. The United States has been making more and more energy from fracking, a process to recover gas and oil from shale rock. The oil that is confined in the shale rocks of the western US can be removed at a cheaper price. This means that the US can make much oil itself and does not need to import oil from the foreign markets.

The fall in oil prices is likely to help the world’s economy. Mainly in Europe, the decrease in oil price is expected to be good for the country’s economy. With Europe’s weakening economies characterized by weak growth and low inflation, the benefits of lower prices would be welcomed by stressed governments. Japan and China should also benefit from decreasing oil prices, as they import maximum of their oil requirements. Low oil prices mean lower inflation and people spending more on goods.

Some oil exporting nations are the big losers due to this fall in oil prices. Few of them, for example Iran, Brazil and Venezuela, want high oil prices which would help them to pay for government plans and save the economy. Russia also needs revenue from oil and gas. The two natural resources generate the country around 70% of its income.

On the other side, decreasing energy prices will not influence Middle Eastern nations that much. The oil producing states of the region have sufficient money to beat lower oil prices for some time.

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