Crude oil prices may not stay at USD 50 or below for long
In an article today in an Indian News paper "Business Standard" there
is a caution that the current celebrations about low crude prices may
not be there for long. The link for the article is given below
http://www.business-standard.com/article/markets/four-reasons-why-the-latest-crude-oil-price-crash-may-not-be-sustainable-115010800845_1.html
According to the article, the crude prices have come down because of
However this continued reduction may not be sustainable in the long run as according to the author, a price below USD 60 is not beneficial to the US Companies into production of Shale oil due to costing. A second factor is the shrinkage of oil revenues of major oil producing countries like Russia (Oil accounts for nearly 45% of budgeted revenues) and Venezuela. This may result in defaults by these countries on their bonds which can result in an international economic crisis.
In my opinion (based on common sense as I am not an expert of Oil industry), the price fall will be a short term phenomenon due to following reasons
Indians meeting majority of their demand through imports benefited a lot from this fall in international crude prices. The prices of petrol came down a record 10 times in the last six months despite Government ploughed back the reduction on two times by increasing the excise duty. There is a significant reduction in inflation based on Wholesale Prices - In fact it became zero in the last quarter. However, there is not much difference with regard to consumer prices. Earlier whenever there was a hike in petrol and diesel prices the prices of daily needs like Vegetables etc., used to go up. But the reverse has not happened now. May be the government should look at this for the welfare of common citizens.
http://www.business-standard.com/article/markets/four-reasons-why-the-latest-crude-oil-price-crash-may-not-be-sustainable-115010800845_1.html
According to the article, the crude prices have come down because of
- Raising US Shale Oil Production
- Insistence of OPEC (Organization of Petroleum Exporting Countries) to continue production to maintain its market share
- Slump in demand from major importers
However this continued reduction may not be sustainable in the long run as according to the author, a price below USD 60 is not beneficial to the US Companies into production of Shale oil due to costing. A second factor is the shrinkage of oil revenues of major oil producing countries like Russia (Oil accounts for nearly 45% of budgeted revenues) and Venezuela. This may result in defaults by these countries on their bonds which can result in an international economic crisis.
In my opinion (based on common sense as I am not an expert of Oil industry), the price fall will be a short term phenomenon due to following reasons
- Oil being a natural resouce has only a finite reserve (unless we discover some huge reserves and start exploiting them)
- Nobody will produce and sustain below costs for a long time
- A default by some of the oil producing nations on their bonds due to shrinkage of revenues will result in a major international economic crisis which everybody scrambles to avoid.
Indians meeting majority of their demand through imports benefited a lot from this fall in international crude prices. The prices of petrol came down a record 10 times in the last six months despite Government ploughed back the reduction on two times by increasing the excise duty. There is a significant reduction in inflation based on Wholesale Prices - In fact it became zero in the last quarter. However, there is not much difference with regard to consumer prices. Earlier whenever there was a hike in petrol and diesel prices the prices of daily needs like Vegetables etc., used to go up. But the reverse has not happened now. May be the government should look at this for the welfare of common citizens.
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