Declining oil price and its impact on countries

Oil, the most important commodity of the world is in news once again. Whenever in news, oil brings gladness to a group of nations while gloom to others. This time, it is in news for the sharp decline of oil prices from $ 115 a barrel to $ 70 a barrel.   One oil barrel in U.S and Canada means 42 Gallons or roughly 159 litres. 

oilprice


Importance of OPEC 
 

OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 oil exporting countries. The aim is to secure the income of member countries from export of oil. OPEC often acts as an economic cartel to influence the oil price and supply of oil in international markets. 

OPEC was founded  in Baghdad, in  September 1960 by  the five countries, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.  Later on Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007) became members. 

The OPEC countries together share 81% of global oil market.  


Who are the major producers of oil?
 

Saudi Arabia: The country leads the chart with around 14% of global oil production. The economy of the country depends largely on the revenue from export of oil. 

USA:  United States is blessed with the presence of many oil fileds and  is  the leading producer of oil with a share of 13% of world production. This quantity  is sufficient to meet  only 35% of  total internal requirement due to the developed economy.

Russia:   The country contributes around 12.25% of  total production. 


Other major contributors are China(5.15%), Iraq(4.54%),Iran (4.14%) and Canada ( 3.75%)

 

Who are the major importers of oil?

 

USA: They depend on export for meeting 65% of total oil consumption. Apart from transport, the major applications of oil are in energy generation and room heating.  It is estimated that a quarter of total 80 million barrels of oil produced in the world is being consumed by U.S. 

China: The dynamic and fast growing economy of China is capable of changing the equation as far as the consumption of oil is concerned. The exponential growth of the country ensures 7.5% growth in consumption of oil.

Japan: The country depends on imported oil for energy generation and the large developed economy of Japan makes the country a major importer. 

India: India is one of the fastest developing countries of the world. In the absence of  major oil fields, the country has to depend on import of oil to meet the entire requirement and the major among them being transportation. 

Any decline in oil price is a boon for the economy of the importer country as it can save huge amount on import of oil. Redduction in expenses in turn strengthens the country.

 oil-price

What are the reasons for the decline in oil price?

 

The major reason behind the declining price is that the global oil supply is in excess of the demand, at present due to the struggling world economies. Countries in Asia and Europe are finding it difficult to maintain their growth rate. China, one of the fastest growing economies,  is struggling to maintain the past growth rate. India too is trying to revive the economy. 

In U.S., which is the highest consumer of oil, the production has increased substantially making them less dependent on import. 

The speculative role played by hedge funds too has added to decline in price. 

 

What are the negative impacts of declining oil price?

 

Three decades ago, the declining oil prices led to the end of Soviet Union and dragged Mexico into a debt trap. 

The recent decision by Saudi Arabia not to cut oil production is intended to protect the market share.  Economy of Venezuela, depends solely on export earnings from oil as it contributes 95% of the GDP. The reduced income is likely to lead to political instability in the country. The country is already under pressures of inflation. Russia is under pressure due to not so good relation with many of the leading developed countries. The declining income from exports of oil is a major threat for  the political and economical stability of the country. 

While, the declining price has its negative impact on the countries who’s GDP depends mainly on the export income, it is good news for other countries as the lower price is likely to stabilize and revive such economies. 

 

 

 

Comments

  1. By Ram Krishna

    Reply

  2. By Jemma Thompson

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *


*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>