Fall in oil prices: An interest oriented crisis

Do you sometimes check yourself that you are literally a fuel-powered machine? Why traditional hydrocarbon products often affect our lives so extensively? What are the conspiracy theories on the global oil plunge? Why do we worry about a potential global depression?

No doubt at all, that we are all on board a west-controlled economic vehicle moving in a world driven by corporatocracy, bureaucracy, interest, greed, omission, nepotism and deception of every shape. Ordinary people caught between the global media, which is more propagandistic than realistic and conspiracies, which are more opaque than transparency.  Oil prices would fall deeper in the coming months, as Brent Crude, the main global oil benchmark has virtually bowed down to the heat, as it was traded below $50 a barrel let alone the other benchmarks, like West Texas Intermediate (WTI) and Dubai Crude. Analysts are forecasting more market panics and low tide of investments in the capital markets as the price could possibly go below $40 a barrel in the coming months. 

Bad news for the capital markets if the fall in oil prices keeps on the same track in the coming months and the situation could even go from bad to worse if the majority of oil cartel “OPEC” defiantly stays on this rocky trail of pumping millions of barrels into the global commodity markets on daily basis.  

We see both the regional and global markets plummet and needs different policies to be adopted by OPEC to let the markets steadily rally and hence the investors’ faith and confidence is revived.

Why fall in oil prices?

Being navigating between different analyses by different prominent economists and international market gurus, coupled with market news bulletins shared through the media of all types; to give a concurrent answer on the above question would take a time. But, make no mistake; if you look back at US, the domestic giant oil producers had almost doubled their production during the last half a decade. This has virtually marginalized the imports of huge volumes of crude oil from many OPEC member countries, like the Gulf, Persian allies, and African oil riches as well. According to NY times, in US average household would save nearly $800 of oil consumption expenses this year. Owing to this fact, you can simply know by the help of the basics of economics that the theory on “Demand Vs Supply” would justify and convince you about this untimely oil price dive.

On the other hand, when you look at the collective commitment of the world industrialized countries on lowering the green-gas emissions and promoting greener energy policies to safeguarding the environment. Many prominent European and East-Asian countries have developed a fuel efficient echo-friendly technology which would substantially slow down the greed demand for importing more oil from the OPEC members. 

Who will feel the heat?

As the matter of fact, every country with oil based economic muscle would get bruised by this fall in oil price. Even USA would suffer a lot, as many loan ridden drilling companies need to pay back their debts to their respective lenders (banks) and answer their investors’ investments (shareholders), whereas many other small scale oil business could possibly wind-up their work. This would firstly depress the human capital in these fields and secondly many other businesses worldwide.

Theories on keeping Market share rather than the Price

Saudi Arabia (the biggest OPEC oil producer) and its allies’ continuous support of not cutting the daily output to enable the global commodity markets take a U-turn and stabilize the oil prices is the real force behind the oil decline. This is an absolute interest oriented move. According to them, they are on the course to take care of the market segment rather than the price. For, losing the market segment would benefit their market competitors and would sideline their production.

 A question may there for be asked, why market segment rather than the price? The answer is so simple, on one hand, It’s real that Iraq and Libya, are pumping and even selling oil clandestinely in black markets which would saturate the potential oil markets and, on the other hand, as we have mentioned earlier USA are now relies much on their local oil production as they have doubled pumping oil during last five to six years, many other European counterparts have slowed down their oil consumption by the blessings of their technology as well. So, now the major market has become Asia (the world’s most populous continent) and OPEC members seems to be competing to secure their market grip in Asia rather than the price. After the market confirmation Saudi Arabia and their allies in the region say the prices would climb high, but this lies under a huge economic contingency as there is no credible outlook for maintaining their market segments to bolster the price. This reality could translate Saudi’s steadfastness on oil over-supply even if the price goes below $40 a barrel to bluffing only; and at this juncture, we cannot rule out any immediate move to a different direction by OPEC.  In contrast, Algeria, Iran and Venezuela “a traditional hydro-carbon based economies trio”, are not happy with such low levels of oil prices and tried to find a different policy to heat up the price, by just cutting the high levels of oil pumping to leverage the market, but their collective efforts seem to have been swallowed by the mightiness of their competitors like Saudi Arabia.

Other floating theories on that the fall of prices is a clear policy against punishing Russia and Iran, could not possibly be a good testimony as both the countries are one of the most resourceful countries in the world. Furthermore, this problem would not ever be contained within them as it would be a shared responsibility by the global oil producers of all continents.

According to the International Monetary Fund (IMF), the gulf and its Persian oil giants could suffer a loss of about $300 billion this year alone if they fail to find an easy way out of this menace.

Finally, fall in oil prices could seem chilling news for an ordinary household as they would argue that they are enjoying with the fuel budget savings, but to worry about a potential regional or global depression seems to be viable as the oil acts the biggest drug that stimulates the global markets. As the financial markets rule the global economy, any loss of faith in investing would touch every level of our society, business institutions of all types would turn around to their cost cutting policies and in turn this would eventually damage the disposable income of every household (that’s you and me).   

Khadar Hanan

E-mail: khadarhanan@gmail.com

Doha, Qatar.