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  • Oil Prices Are At A 12-Year Low, But How Long Will That Last?

    Oil Prices Are At A 12-Year Low, But How Long Will That Last?

    The past couple of years have shown a rapid and continuing decline in global crude oil prices, and no one seems to know what to expect in the coming months. To illustrate this phenomenon more clearly, Brent crude – the global benchmark for oil – was selling at more than $114 per barrel in June 2014 . Several months later in early 2015, the price had dropped to $60. At the moment, a barrel of Brent crude costs a mere $30, a level not seen in 12 years. Needless to say, it is a staggering downturn.

    The drastic rise and fall of oil prices can be traced down to simple economics: Supply remains higher than demand, which has resulted in the price crash. A report from the International Energy Agency shows that the world’s energy companies have been producing far more oil than the world needs since mid-2014.

    A brief look back at the years between 2010 and 2014 will show us that this wasn’t always the case. As various nations tried to recover from the financial crisis, the demand for oil soared but global production had some difficulty keeping up. When energy analysts predicted that oil prices would gradually increase from $100 per barrel to much higher levels, some of the biggest energy producers decided to invest billions of dollars in what were called “unconventional reserves,” which included shale formations, Canadian tar sands, and Arctic oil.

    Unfortunately, the global economy is experiencing stagnation and political turmoil, two factors that can create a profound effect on oil prices. With China’s economic slowdown, Europe’s Eurozone debt crisis, the conflict between Saudi Arabia and Iran, and notably, Saudi Arabia’s move to increase oil production despite the drop in demand, crude oil prices took a nosedive.

    Saudi Arabia and its allies in OPEC plan to obliterate US frackers completely backfired as they turned out to be far more resilient to the price slide than Saudis initially thought. Add to that the recent enforcement of tougher fuel-efficiency standards by the US – which happens to be the world’s leading oil consumer.

    So how does this oil price slump affect the rest of the world? The hidden and obvious implications are great – for one, it’s not just the giant oil firms that will feel the blow of this catastrophe, but also the ancillary businesses that depend on these companies for existence and survival. Many oil factories are currently idle and millions of workers have been laid off. Vehicle owners in developed nations such as Japan, Germany, and the US are spending more on other things since petroleum is now cheaper. Oil producing nations such as Saudi Arabia are hurting quite badly in the revenue department.

    As is always the case, a slight change in any of these factors can determine whether oil prices will go back up, remain the same, or sink even lower. In the meantime, we can expect these low prices to continue indefinitely.

  • Oil Prices Could Weaken Vladimir Putin’s Resolve

    Oil prices stand at a three year low of $81 per barrel. That’s significantly less than the $100 per barrel that was in place when Vladimir Putin first invaded Ukraine.

    While falling oil prices are good news for American consumers, it is bad news for Vladimir Putin.

    Half of Russia’s budget depends on oil and gas trading.

    Despite having a large and comfortable international currency reserve of $450 billion, the Russian stock market has been down 6% in the last three months.

    Also, the Ruble is 20% below the dollar in value this year.

    Add to that a projected Russian economic growth of just 0.5% in 2014 and 0.3% in 2015 and a feared recession, and things just don’t look great for Vladimir Putin.

    https://www.youtube.com/watch?v=H5LEIsWcC7M

    “We’re probably getting closer to the point of pain,” said Phil Flynn, an energy analyst at the Price Futures Group. “It’s definitely putting the squeeze on their balance sheet.”

    Vladimir Putin is writing some ambitious checks that his budget may not be able to support. Russian news agency Itar-Tass reported that Putin wanted to expand military spending by 21% next year, but Russian Finance Minister Anton Siluanov says that Russia simply can’t afford it.

    So, while Vladimir Putin and Russia’s government may feel the squeeze of dropping oil prices, will it affect Russian citizens?

    Michael Fitzpatrick, a former energy analyst with the Kilduff Report, says it likely won’t. Unless things get substantially worse.

    He says of falling oil prices,

    “I don’t think you’re looking at any political or social unrest unless prices go considerably lower.”

    However, Russia isn’t the only country to be somewhat deflated by dropping oil prices.

    The countries of Saudi Arabia, Libya, and Iraq have also been wounded. Nigeria, Venezuela, and Iran are also feeling deeper budget deficits due to falling oil prices. So much so, that the government of Venezuela has called for an emergency meeting of the Organization of the Petroleum Exporting Countries, or OPEC.

    Falling oil prices remain a good thing for the general population, though.

    “In the short term, oversupply and lower oil prices clearly have some positive impacts,” said a report by the Center for Strategic and International Studies. “They are good for economies and consumers, helpful for sanctions efforts against rogue states, and serve as buffers against continued political unrest and supply disruptions.”

    “But, they also carry the seeds for future troubles, including under-investment in efficiency and alternative energy forms as well as in future oil and gas projects, and can have mixed climatic impacts, and eventually lead to higher prices.”

    What do you think of falling oil prices? Good thing or bad thing?