Rising Oil Prices Just the Beginning
Oil prices are down currently, saving developing countries from having to borrow money.
Oil prices started moving up just about a year ago up to $147.70 per barrel, after prices had dropped to the mid $20 range. There were a lot of countries who were very happy when the prices started moving up, while other countries were stuck having to borrow money heavily to finance purchase of oil, with Asian countries being the ones who were hit most.
Oil Imports Critical to Asian Economy
Countries besides those located in the Middle East depend heavily on oil imports purchased on the spot. With prices shooting up beyond $140, there was a ripple effect that left many countries reeling for funds, because oil is one commodity that these countries cannot do without. Transport of goods depends on the oil that is imported, and when prices shot up, it left producers of goods with no option than to raise prices of other commodities. The overall effect was a price rise that hit the public and left them borrowing money as well.
Concern in the Middle East
Falling prices will be a concern to producers in the Middle East who were flush with funds when the prices were high. Because the Middle East sits on one-fifth of all oil reserves of the world, they demanded that prices be increased, and even resorted to cutbacks in production to create artificial shortages. Countries like Venezuela and producers in the North Sea created problems for those in the Middle East when this happened. Now that oil prices are again decreasing, the Middle East is facing one financial crisis after another, and there is bound to be increased concern in this matter.
OPEC Refuses to Cut Production
Oil prices are currently down to below $69 a barrel, and the Organization of the Petroleum Exporting Countries (OPEC) has stated that production levels will be held at the current figures with no changes or cuts until their next meeting on December 22, 2009. Producers in the Middle East will no doubt be unhappy with the decision, while oil importers will look to lap up existing reserves in the market at prices that may be better.
Lower Oil Prices May Reduce Countries’ Debts
Countries depending on import of oil for domestic consumption will be happy at the price levels that oil is currently being traded, because lower oil prices will not only help them control the spiraling inflation in their countries, but will also encourage lower loans from international sources. Whether the decrease in the purchase price of oil will result in the reduction of domestic selling prices remains to be seen. However, some countries have taken the step and reduced domestic prices, while others prefer to wait and watch before taking any action. An example of this is that in India, domestic prices of oil still hover around the mark when oil was traded at its highest. But India is not looking to borrow money to pay for oil imports, because they have enough reserves that can help them through this ordeal even if prices rise again. Borrowing money may still be an option for other countries in the region, as well as seeking help from Middle East producers to meet their requirements.
very interesting point – never considered the impact lower oil prices could have