00:10 GMT +317 November 2019
Listen Live
    A worker checks the valve of an oil pipe at the Lukoil company owned Imilorskoye oil field outside the West Siberian city of Kogalym, Russia, January 25, 2016

    False Bottom of a Barrel: This is Who Would Benefit From Oil Prices Slump

    © REUTERS / Sergei Karpukhin
    Business
    Get short URL
    Oil in Turmoil (134)
    3155
    Subscribe

    Despite the fact that the drop in global oil prices has damaged a number of economies around the world, it could also accelerate the development of renewable energy sources and energy-intensive industries, French energy expert Philippe Charlez wrote.

    Before the first global oil crisis in 1974, crude prices were determined by importing countries. After World War II, the price was $1 a barrel, despite stable demand growth of six percent a year.

    Then, after the 1974 crisis, oil prices have been controlled by producers, particularly via OPEC quotas.

    Nevertheless, since the early-2000s, oil has been a commodity which corresponds more and more with the law of supply and demand, energy expert Philippe Charlez wrote in an article for Le Huffington Post.

    Between the end of 2014 and late-2015, crude dropped from $110 to less than $30 a barrel.

    Such a significant slump was due to a slowdown in global growth, especially in China and India, as well as a market glut amid US shale oil hitting the market. OPEC member countries which have different economic situations and heterogeneous views on geopolitics have not managed to agree on lower quotas.

    Consequently, currently oil prices are regulated by the six million barrels of US shale oil a day rather than by the 30 million barrels from OPEC members, the author wrote.

    "The effect of this flexibility is that in the coming year American oil will serve as the 'petroleum pendulum', with crude prices oscillating between $30 and $70 a barrel," the article read.

    What is more, countries like Iraq, Libya and Syria currently produce less crude than they can. Their possible return to the market would deepen the oversupply, capping the price at $70 a barrel.

    Low prices are a big concern for oil-producing countries whose economies are not that diversified. In this situation, Gulf monarchies led by Saudi Arabia are playing a "double game." First of all, they want to suppress the US shale oil industry. In addition, they want to weaken their historic Shiite rivals, including Iran and Syria.

    Despite the fact that Riyadh cannot balance its budget amid $30 a barrel, the kingdom will be able to sustain its economy with its foreign exchange reserves of $800 billion. However, in a domino effect, the slump in prices has destabilized major producers like Algeria and Nigeria where high oil revenues maintained social stability.

    Many believe that the drop in oil price would pose a threat to innovations in the energy field and would slow down investments into renewable sources of energy.

    "However, the assumption is unreasonable because oil is mostly used for transportation needs. Only five percent of oil is used for producing electric energy. The slump in oil prices could improve the attractiveness of natural gas against coal and nuclear energy. This may accelerate the transition to sources of energy emitting less greenhouse gases," the analyst explained.

    In 2014, European countries spent over €300 billion on oil. The slump in oil prices would open the door for European industry, including the energy-intensive automotive, iron and steel, and petrochemical industries as well as transportation and the fishing industry.

    All of the above could drive investments up and lead to the creation of thousands of jobs in the industries which have been damaged by unemployment for the last 15 years, Charlez wrote.

    Topic:
    Oil in Turmoil (134)

    Related:

    Crude Awakening: Iran's Oil Revenue Jumps 90% After Lifting of Sanctions
    Russia Will Maintain Oil Output at 537 Mln Tonnes in 2016, 2017
    Moscow Hopes Doha Meeting of World's Oil Producers Will Stabilize Prices
    This is Why Theory of Kremlin's 'Secret Oil War' Makes no Sense
    Tags:
    renewable energy, crisis, economy, energy, oil prices, OPEC, Europe, Saudi Arabia
    Community standardsDiscussion
    Comment via FacebookComment via Sputnik