Low Oil Impact Hits Producing Countries

The sudden slump in oil prices, which have fallen 15% in the past three months, has sent tremors through the capitals of the world’s great oil powers, many of whom could face testing budget crunches if the tendency persists.

Higher output coupled with weaker demand from China and Europe has driven the price of crude down to $85 – its lowest for four years. The US also now produces 65% more oil than it did five years ago following the boom in shale production. The rise has contributed to the global glut of crude and allowed the US to import 3.1 million fewer barrels of oil a day compared with its peak in 2005. Prices are now well below the level on which many oil exporters have based their budgets.

If prices remain weak – and many forecasters suggest they will – then from Moscow to Caracas and from Lagos to Tehran governments will start to feel the impact on macroeconomic policy.

Brent has averaged $103 since 2010 – trading mostly between $100 and $120 – so a continued period of $80 oil, or less, would have an impact across the world, and from multiple angles.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza