Oil price slump a mixed bag for world economy

By Wang Jiamei Source:Global Times

A confluence of factors have weighed down oil prices, including a strong US dollar, a global supply-demand imbalance and an increase in domestic crude output in the US, the world’s largest oil consumer and importer; all of which are unlikely to change in the months to come. While falling crude prices may mean shrinking revenues for oil exporting countries and regions, they could also lead to a drop in raw material prices, a trend which could lend new economic momentum to oil importing countries and regions.

The continuous growth in oil production has been a major reason behind the recent drop in crude prices. According to data from the US Energy Information Administration, US crude oil production reached 8.4 million barrels per day during the first nine months of this year, up 14.5 percent compared with the same period last year. Meanwhile, Russia also revved up its oil output to increase fiscal revenue, with September production in the country close to the post-Soviet peak of 11.48 million barrels per day set in 1987. Moreover, the Organization of the Petroleum Exporting Countries (OPEC), which provides one-third of the world’s oil, has surprisingly broken from its tried-and-true pattern of cutting production in the face of falling prices; instead the organization lifted output to 31.06 million barrels per day in September, the highest level since November 2012, according to Reuters reports.

On the other side, oil demand forecasts have been largely subdued thanks to the faltering pace of global economic recovery and the shale gas revolution in the US. Despite uncertainties surrounding shale gas development, US demand for oil has fallen noticeably over recent months. Statistics show that only 30 percent of the country’s oil consumption needs were satisfied by imports, down from 60 percent in 2005.

In the meantime, the world’s other top two oil consumers, Europe and China, have also recorded sluggish demand due to their own slowing economies. Because of this, OPEC and several other organizations have already lowered their expectations for global oil demand several times this year.

In addition, the strengthening US dollar has also contributed to falling oil prices. Theoretically, an appreciating greenback would hurt demand for commodities by making them more expensive for holders of other currencies. The US Federal Reserve announced Wednesday the exit of its monthly bond purchasing program, indicating rising confidence in its economic recovery, which is expected to further boost the dollar in the near future.

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Weekly Review: Last Week’s Top 5 International Business Headlines

1France Eyes Libya Deals After Unfreezing $2 Billion Assets   (arabiangazette.com)

France said on Monday it was ready to start releasing almost $2 billion in frozen assets belonging to Libya’s sovereign wealth fund, as it looks to secure investment from the oil-producing nation. France’s Foreign Minister Laurent Fabius made the announcement during a visit to Tripoli, the latest in a series of high-level French political and business delegations to the OPEC member. France spearheaded efforts to oust Libyan leader Muammar Gaddafi last year and, as part of wide-ranging international sanctions, froze about $8-9 billion in assets held in France. Read all.

2. East or West? Ukraine to Choose its Path Ahead of EU Summit this Month (Washington Post)

According to an old folk tradition, if a man knocks on the door of a Ukrainian beauty with a marriage proposal but does not win her heart, she will reject her suitor by presenting him with a pumpkin. Who will get the pumpkin from Ukraine at the end of this month — Russia or the European Union? Read all.

3. Europe’s Economic Rules. Berlin vs Brussels (The Economist)

SINCE the euro crisis started in early 2010, the debtor nations on the periphery of Europe have become used to strictures from Germany, not least for running big balance-of-payments deficits. On November 13th, for once, it was Germany’s turn to face a possible ticking-off. For the first time since more stringent rules and oversight were put in place to try to avert future crises, the euro area’s unofficial leader, hub economy and chief creditor is to be investigated. Its misdemeanour? Running too big a current-account surplus. Read all.

4. Is Europe Turning Japanese? (Wall Street Journal)

The euro zone’s 0.7% October inflation reading convinced the European Central Bank to cut interest rates last week. It also spurred a lot of nervous talk that low inflation and slow growth mean Europe is entering a Japanese-style “lost decade.” There are ominous similarities between the euro zone today and Japan at various points in the 1990s, even if you allow that economies can stagnate each in their own way. But there are also reasons not to believe that Europe is doomed to suffer Japan’s malaise. Read all.

5. Economic Overhaul: China Opens Doors to More Private Competition       (Russia Today)

In the biggest economic turnaround in two decades China’s leaders have pledged more private competition in dominant state industries. The new economic plan aims at rejuvenating a slowing economy and also eases limits on foreign investment in e-commerce. The changes promised in a Friday report issued after a closely watched Communist Party conference compares with the effort at market-style reforms in 1978 that launched China’s economic boom, the Associated Press says citing the state media. Read all.