Published:
The low oil prices have had both positive and negative effects in the short-term, but the long-term effects are less known and are thought to have wide and long-term impacts on the global economy. Low oil prices have reduced gas prices and have allowed people to save money at the pump. Lower gas prices can help people who have lower incomes and can also reduce costs on energy bills for those who live in cold climates. The automotive industry has sold more cars while gas has been less expensive, which has caused total vehicle sales to climb from 12 million per month to nearly 18 million. In addition, transportation companies benefit from lower fuel costs, as does any business that has to pay fuel bills to power its operations.
The United States employs over 500,000 Americans in the oil and gas business, but oil producing states, such as Texas, North Dakota, California, Alaska, and Oklahoma are being hurt by the decline in profits and loss of jobs. Low oil prices can negatively impact the ongoing efforts to develop alternative sustainable energy sources, like solar, wind, and hydro-energy. These business can be uneconomical when oil prices sharply drop, as fuel is more cheaply available. Oil–dependent countries can face the most turmoil, and can have the largest destabilizing effect on the global economy. Saudi Arabia and other oil producing nations, like Norway, Kuwait, and Brazil have had to adjust to the low oil prices by producing less oil, accepting lower margins, and reducing the workforce in oil-related businesses.
The International Monetary Fund’s latest assessment for the economies in the Middle East and North Africa showed slowing growth and the destabilizing effect of low oil prices. Although the lower costs have been regarded as positive for most consumers globally, the profits of past years went largely to finance ministers and other government members. According to the report, none of the MENAP (Middle East, North Africa, Afghanistan and Pakistan) oil exporters are saving their oil wealth for the use of future generations. The current price of a barrel of oil is well below the “fiscal breakeven” for many of these nations, which is the minimum price needed for government budget to balance. Very few countries have a “fiscal buffer” to last over 20 years, and many would be forced to run into debt in just over 5 years. In this context, the “fiscal buffer” would refer to how long countries can run on their assets, until they have nothing left to sell. The deliberate overproduction of oil, along with shrinking demand, has caused oil prices to drop dramatically. It will be interesting to see just how long oil prices remain this low.
File under
Share this article
