Cheap Oil Mania

Pause for a moment and appreciate that the price of oil had dropped below $28 a barrel. Oil has not been this cheap since I was born, and while I appreciate petrol being cheaper at the pump this is having substantial economic and political repercussions.

We are now in the period where everyone pulls out forecasts of the $15 dollar barrel but I feel that this is just where the market momentum is pointing, rather than a real sustainable price for the commodity. With regard to the market we see players like Glencore’s share price tumbling down. But I would argue that this market is ripe for a comeback, with the only direction for the price being up.

I would argue that in the near future the large oil producers are going to cut production, it will be necessary for OPEC to maintain stability, and critically Russia’s economy is taking a hit due to its reliance upon export commodities for growth. Domestic producers in the UK are facing an unparalleled squeeze, and there are signals that operations are going to have to shut down with big firms such as BP shedding workers . Shale oil from the U.S. has changed the scope of demand, and the relative slowdown in the Chinese economy means that brent crude is not the world no. 1 for the moment.

Often it is thought that a drop in oil price behaves similarly to expansionary fiscal policy, there should be more money in peoples pockets right? This might be the case for smaller drops in price, but the extent to which this has occurred and accounting for the global ramifications may mean a drag on global growth. This negative effect may be channelled through all those employed in the fracking industry, and businesses with related operations such as shipping. The going question right now is what prices can non-OPEC producers of oil survive at, and this is going to be what determines when OPEC potentially agree to changes in production, as well as the extent to which this may prove negative for economies.

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China Rising – Aljazeera series

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Here is a new four part series from Aljazeera. After centuries of western dominance, the world’s centre of economic and political weight is shifting eastward. In just 30 years, China has risen from long-standing poverty to being the second largest economy in the world – faster than any other country in history. Part four below entitled “Made in China” focuses on China’s economic role in the world is growing at a record pace, and it is also now a key player in world politics. The country has no doubt become a global manufacturing giant, but how will it deal with issues on the home front such as increase in pollution and water shortages? Although it has been confronted with tough environmental problems, efforts are being made to solve these. To view other episodes click the link – China Rising

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