Oil prices plunge elates some, causes fear in others
Abu Dhabi (AsiaNews) - The price of oil continues to fall and is likely to continue to remain low throughout 2015. This has made some analysts happy because lower prices will boost demand and economic activity. Others are more sceptical, seeing in lower prices a harbinger of further economic decline.
The Organisation of the Petroleum Exporting Countries (OPEC) cut the forecast for how much crude it will need to produce next year by about 300,000 barrels a day to 28.9 million, the least since 2003.
Because of the shale oil boom in the United States, the world is awash in oil and cutting into OPEC's business. Yet, despite lower demand, OPEC decided on 27 November not to cut output, lowering its forecast on how much crude it will have to provide in 2015.
In the past few days, prices plunged by 10-17 per cent from around US$ $ 70 a barrel. Yesterday, Brent was selling for US $ 64.75 per barrel and West Texas at 61.47. Since June, prices have fallen by 50 per cent.
For Mohammad Sadegh Memarian, an Iranian Oil Ministry official, the price per barrel could drop as low as US$ 40, leading to an "enormous price-dive shock".
The oil shock or price war has been blamed on Saudi Arabia, which supplies 40 per cent of global demand. By maintaining high oil output, it can make US shale oil less competitive and undermine Iran's economic recovery, weakening Tehran in the Middle East power game.
OPEC members are also in a price war. Three of its most important members, Saudi, Kuwait and Iraq have agreed to sell oil to Asian customers at a discount.
Kuwait's state-run oil company will sell its crude to Asian refiners at US$ 3.95 a barrel below regional benchmarks next month. Iraq and Saudi Arabia widened their discounts to the most in at least 14 years.
Capital Economics, an economic forecaster, expects that each US$ 10 fall in the oil price will cause a surge in global Gross Domestic Product (GDP) of about 0.5 per cent. Conversely, other analysts say that lower prices herald a worsening economic crisis.
Europe is on the brink of deflation. Japan has already slumped into its fourth recession since 2008. China is forecast to grow this year at the slowest pace since 1990. Russia is also heading toward its first recession since 2009.
On the plus side, several Asian countries (Indonesia, Malaysia, Philippines, India, etc.) are now able to cut fuel subsidies because of falling crude oil prices. Saving can thus be pumped into other sectors, like education and social services.
However, even among some beneficiaries, not everyone is happy. In the Philippines, Energy Undersecretary Zenaida Monsada said if the price of oil continues to fall, it could mean job cuts for Filipino workers overseas and losses in remittances.