The impact of a lower oil price on the world

Julie Brownlee, Fsp Invest, 18 Sep. 2015

Tags: oil, oil price, lower oil price, impact of lower oil price, commodities,

Last June, the price of oil started its descent. Since December, the price hasn’t managed to get over $70 and at the moment, it’s trading below $50 a barrel.

So what have been the knock-on effect of a lower oil price? Has anyone benefitted?

Let’s take a closer look…

The reasons for the oil price slump and its casualties

Just 18 months ago, the oil price was over $100 a barrel. But how time has changed that.

One of the main reasons for the oil price coming under severe pressure was Saudi Arabia’s decision to flood the market with the aim of hitting shale producers in the US, says The Times.

The hardest hit from the demise of the oil price are exporters.

Take Saudi. The country can produce oil at very cheap prices, but it needs a higher oil price so it can keep up its level of public spending.

This has led to Saudi having to sell bonds for the first time in eight years, say the experts at Money Week.

Other oil producers in the Middle East are also feeling the impact. And Russia is now in recession.

Norway, home to the biggest sovereign wealth fund thanks to oil profits, is having to use savings. The country is facing job losses which exceed the number seen in the 2008 recession.

With oil coming from many of the world’s most volatile regions, it could put pressure on political stability.

The winners of the oil price slump

Countries that import large amounts of oil are the biggest beneficiaries of the oil price slump. This includes China, India and Japan.

This should help to boost consumer spending in these regions.

The rise of fracking in the US means the country is no longer heavily reliant on imports. But lower oil prices have hit the fracking sector, squeezing margins and resulting in hefty spending cuts.

So there you have it. The impact of a lower oil price on the world.

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