Posts
As an Indian the news about falling crude oil prices bring cheers on our face as it reduces our oil import bill, and since petrol and diesel prices are now linked to market directly it reduces the retail prices, It also helps the Ruling party which increases excise rates on petrol to fill their money chests. We all are very happy and so are almost all of the oil importing countries. Other thing which makes us even more happy is that the prices would reduce further till mid 2015 and if Indian government feels that their pockets have no space left for further excise duty hike we might see further decrease in retail prices of both petrol and diesel in coming weeks.
The big question which arises is :
Why are prices of oil falling and who is doing this and why?
Answer to this question is not very difficult and is infact a single word - USA, Now why US would do this? and answer to this is to get more control/share of global oil market. I would explain the 'How' part in following text.
This all starts from what is known as shale oil, which is a substitute for crude oil. United States of America has world's largest deposit of shale oil and gas, and US oil companies such as Shell have started producing shale oil from oil shale on commercial level if I iterate their words 'shale oil exploration can be sustained at cost as low as $18 per barrel. Don't be too happy now as it might never reach to this level(even in present scenario). USA is flooding market/using shale oil and has drastically reduced it's oil import bill, thus forcing prices to fall and make other OPEC countries to cut oil production.
World is currently witnessing over supply of oil, which is much more then what it needs. Since the demand and supply principle is basic for pricing of any commodity, hence fall in price is very logical. At this stage next question which comes to our mind is quite obvious:
Why would oil producing countries do nothing in controlling the supply?
Answer to this question is again a single word - USA, and I'll explain why USA would do this. US has started commercial exploration of oil shale and it needs market for it. Present global oil supply market share is very well divided between Middle east, Iran, Russia, Venezuela and Iraq apart from some other small suppliers. USA wants to increase it's share and then govern the whole oil pricing globally. Hence it has flooded the markets with shale oil. Since it has deep pockets it can sustain any price levels for much more time when compared to conventional oil producers of the world.
There is also political factors involved in this which is further forcing USA to refrain from cutting oil supply. Iran, Russia, Venezuela are not allies of USA and are rather against it diplomatically, economically, politically(you can add more terms here), Venezuela has 95 percent of government revenues coming from oil export, Russia has 70 percent of money coming from oil export. Falling oil prices have already playing it's intent with ruble down by 60 percent. Russia's attack on Ukraine is probably the reason. budget deficits of these three countries are rising and soon economies would see major cuts in government spending . This fall would also weaken Iraq and Syria (including the areas controlled by ISIS) as this terror organization would get too less money from oil which they sell.
Oil producing countries (OPEC) have decided to refrain from cutting output fearing that US would increase shale oil output further and get hold of their present market share. Hence in long term what I feel is that falling oil prices shall have a positive effect on world and oil importing countries as these countries(including India) would contain their budget deficit.
Probably by 2020 USA would become biggest oil produces of the world and would be called 'Saudi America' sounds funny but is very effective.
Like this post HIT LIKE button or share on your wall..thanks!
