Black Gold and Texas Tea
Oil is
and has been the new steel since the transition of the world into automation,
it runs the world and keeps our economy properly lubricated. Its economic, political, and geographical importance
goes without being said, and as with any other major commodity its price has a
direct correlation to the impact on the health of the global economy. When prices are high markets slow down because
consumers can’t afford it and vice versa when the prices are low. As of today the price for US crude is $45.40,
and $48.09 for Brent crude, both however are far down from where they were a
year ago. This is a problematic situation
although cheap oil is ideal for consumers it is quite problematic for any oil
exporting nation. This slump in oil
prices is a growing problem that is estimated could last anywhere from 5 to 15
years, and it must be met swiftly by all trading nations if it is to be relieved.
You can
have too much of a good think, as each day passes billions of dollars are being
lost by both U.S. companies and foreign governments. Domestically this drastic fall in oil prices
by approximately 60% has led to sky falling stock prices, mass layoffs, and a significant
decline in manufacturing. An industry leading
example is Caterpillar whose stock has fallen about 30% since December and who
has relied heavily on the sale of new oil derricks in North Dakota. That is however one of many companies who
have been affected by the oil slump, abroad organizations like OPEC continue to
make the situation worse. In nations
like Russia, Venezuela, Iraq, and Saudi Arabia their governments have had to
for the first time in decades prepared to cut spending and are issuing bonds to
cover shortcomings in this year’s budget.
Some countries like Saudi Arabia are far better off financially than poor
nations such as Venezuela of which relies on oil and gas to make up 25% of
their annual GDP. Which makes this an
international problem that goes beyond a mere U.S. interest, if allowed to
continue the concern is not with rich countries like Canada, Saudi Arabia, or
the U.S. rather nations that are politically fragmented. Those like Venezuela, Iraq, or the Republic
of the Congo are at risk unless actions are taken in this global theater.
The
problem here primarily resides with the Organizations of the Petroleum Exporting
Countries or OPEC for short whom have artificially kept the already deflated
oil prices low in an attempt to reduce the influence of a recent rise in the US
oil market. This is done by the refusal across the board of OPEC members led by
Saudi Arabia to reduce the output of crude into the global market place. A reversal of that order would allow for a decrease
in the supply of crude oil until such time that it reaches equilibrium with
demand at a much more favorable price. And,
although this could cause oil exporters to lose market shares this is a greater
problem beyond the bottom line. If
allowed to continue this slump will pose a significant threat to the whole of
the global economy, impacting poor oil exporting nations and even rich oil
dependent nations. Any other reasonable alternative
will become that of a tariff war for which no one nation wins and would be a
step backwards for global trade.
---Nathaniel Dust---
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