It has been a decade since fuel prices in the UK have been
less than £1.00 and it looks like it’s finally returning to that price. Is this
really a good thing though? Let us explore.
Back in June 2014, Crude Oil was at a mighty high of $115
per barrel. How did the last 6 months fair? Disastrous; that sums it up in the
nicest way possible. Crude Oil now struggles at $50 per barrel with most
trading days actually suffering lower prices, but why?
It is a simple case of supply and demand; pretty much the
fundamentals of everything in this business money world. You want a job
(demand) but is there a vacancy (supply). Oil simply soared as there was not
enough supply to keep up with the demand of it; countries such as China and
conflicts in key oil nations like Iraq had consumption demands through the
roof. Oil production could not keep up with demand, so prices spiked.
The world saw this as a lucrative moment. High prices
spurred companies in the US and Canada to start drilling and extracting more
crude oil. This started to fill the demand, stabilising prices at around the
$100 mark. As time continued drilling also did but demand for oil in places
like Europe, Asia and the US started to slow down and taper off. Blame this on
the weakening economy of the past few years and the new efficiency measures. Other countries like Iraq also joined the drilling team increasing
supply even more. By 2014 the world oil supply was on track to rise much higher
than demand, this is where the last 6 months happened flipping prices and land-sliding
down.
So who loses?
Russia and other mass oil producing countries have been hit,
hard. Putin faces the difficult challenge of a falling rouble and plunging oil
revenues hand in hand. Russia is one of the world’s largest oil producers;
being a definite loser from the free falling crude, they suffer as Russia’s
economy is simply too dependent on energy revenues, oil and gas accumulating
70% of export revenues.
Countries in the Middle East which also rely on its oil
wealth have suffered but not as dearly. Some like Abu-Dhabi have enough cash
reserves to prop up its economy, self-sufficient you could say but not
profitable nonetheless.
And the winners are…
Large importers such as China and India have benefited from
the sharp fall in oil price. “More bang for your buck”, you could say. Dropping
fuel prices have most definitely benefited consumers. Companies such as BP and
EON have announced price cuts to their services. Being almost certain,
investment bankers and traders have definitely caught onto the plummet and made
a fortune out of it.
Is this really good for the economy? As of right now,
probably not. Work will continue whether the economy is at a downturn or not. It
just means most of us who drive can get from A to B slightly cheaper!
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