The Two Sides of the Oil Price Collapse
The Two Sides of the Oil Price Collapse
Oil prices dropped to their all-time low for the first time in decades.Starting June 2015, the price of a barrel of crude oil dipped to less than 30 U.S. dollars from 110 U.S. dollars in 2014. This significant decrease in oil prices is said to be caused by the booming shale gas industry in America. Shale gas is retrieved from sedimentaryrocks through the process called hydraulic fracking. It is a natural gas that can be used as an alternative energy source, and the increased production of such gas lowers the demand for crude oil.
Analysts explain that the ones that get the most benefit out of the lower costs of crude oil are the motorists who buy the product in retail. Also, major importers of petroleum products for industrial purposes, namely China, Japan and many countries in Asia may have economic gains from the lowered oil prices. India, a country that imports more than half of its petroleum and is highly dependent on oil subsidies, may also benefit a lot from this.
However, major producers and exporters of crude oil like Russia and Saudi Arabia are those that suffer much because of the lessened demand and value of oil, to the point that some oil companies are drowning in debt and facing the brink of bankruptcy.
For Russia, the collapse in oil prices recently caused its economy to shrink by more than 0.5 percent. With the country’s ongoing dispute with Ukraine topped by this decrease in national revenue brought by lowered oil prices, Russia is pushed towards an economicrecession. Saudi Arabia and other OPEC members are asked to lessen their oil production so that the lessened supply will push oil prices back up but some countries do not show willingness to do so as it already proved to be an unsuccessful move in the past.
Major oil exporting companies like Chevron, Exxon Mobil and Royal Dutch Shell made their worst quarterly reports in the past decade.Smaller oil companies have resorted to cutting payrolls of employees, lessening cash expenditures and selling assets just to stay in business. They claim that although the lowered prices can benefit their consumers, they might not have enough return of investment that will allow them to continue providing products to the public.
Some analysts say that oil prices may continue to fluctuate until the end of the year, or maybe even longer. Although the IMF expects a possibility of a billion-dollar loss for the oil industry, it is predicted by some experts that supply and demand may balance out by the end of 2016, and this will result to slowly stabilizing oil prices.
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