OPEC is now “powerless” to prevent oil prices from falling further, one senior Gulf official told U.K.’s the Telegraph recently. It has been said that the best cure for low prices is … low prices, but this may not be the case with oil.
It has been said that the best cure for low prices is … low prices, but this may not be the case with oil due to its importance to the global economy. On the plus side, falling oil prices act as a stimulus package for consumers, as less money going into gas tanks means more cash to buy other goods and services.
That being said the world’s most important consumer economy, the United States, is becoming more and more dependent on shale oil production for its economic recovery. Zerohedge.com recently produced an article that showed that since December 2007, shale states have added 1.36 million jobs, while non-shale states have lost 424,000 jobs. And Reuters reported that new well permits issued across the United States dropped almost 40% in November.
Russia, the world’s top oil producer and second-largest oil exporter after Saudi Arabia, pumped an average of 10.63 million barrels per day in November and it expects to maintain that pace into 2015. Economic sanctions combined with falling prices give it little incentive to curtail output.
As for oil-rich nations such as Venezuela and Norway, oil revenues are essential for fueling domestic social programs. Thus, low prices will likely prompt these nations to pump even more.
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