Homework Writing Help on The Drop in Oil Prices

The Drop in Oil Prices

According to the views of most policy makers, the fall in the oil prices in Europe, USA, and Japan, and in other places will boost the economy of the world by bringing a good fortune to manufacturers and consumers. The FREC bank of the United States and the IMF officials expressed their less concern on the falling crude oil’s cost as a sign of the global slowdown. They instead hold the belief that cheap oil will boost the world economy, and mostly the countries distinguished with high energy. According to Stanley Fischer, the reduced oil prices will be of benefit to the United States of America as the prices are more likely to produce a positive effect on the GDP. The president of European Central Bank also saw the unexpected fall in the price of crude oil as positive to the economy.

There has been a 40% sudden drop in the prices of crude oil, which economists have viewed as a signal for a positive impact on the global economy. Historically, there are beliefs that sharp falls in the prices of oil are associated with recession because the demand of energy drops. It is for this reason that Japan is trying to recover from the sudden fall of crude oil. Many personalities are viewing this price drop as different, where most of them are of the opinion that the new prices will improve the global economy. Some economists and officials believe that the fall in the prices of crude oil has resulted from technological advancement, reducing the drilling costs. Others believe that the revival of the Libyan oil and the availability of other competitors have brought about the changes in prices of crude oil.

The fall in oil prices has greatly affected oil exporters e.g. Nigeria and Iraq as they mainly depend on oil revenues. Others countries such as Russia and Iran are already experiencing economic problems because of the fall in oil prices. In Japan, the economy is at low spirits, and the GDP has been estimated to have dropped by 1.9% between the months of July to September. According to the IMF managing director the overall price drop of crude oil will develop winners and losers, but it will bring positive effects to the general world economy.

The IMF and economists base the reduction in oil prices to the lower costs of manufacturing and transportation of oil by energy-intensive industries. The consumers will be the highest beneficiaries of the low prices, as they will pay less for petroleum products, thereby increasing their consumer spending. A U.S. research has shown that the U.S. consumers will save about 750 dollars each, over the next year, should the reduced prices hold. The new prices may also create a weakening demand, creating sluggishness in the global economy. This is a risk that policy makers should consider when looking at the whole issue of the fall in oil prices.

According to a managing director at Clearview Energy Partners, China has experienced slower growth, and for this reason, the growth in oil demand will be approximately 1.1 barrels a day in the next year. China’s weakness may foreshadow the weaknesses in other places, especially in European countries. China’s slowdown and the anemic growth in Europe have been agreed upon by economists as the causes of the current drop in oil prices. Through advanced drilling techniques, Canada and U.S. have furnished their production. Qatar and Saudi Arabia have tried to keep price competitors out of the market by ensuring the running of their wells. Fuel efficiency has also been boosted by the new technology and the US tightening regulations. Oil importing countries may cut their importation bills by around $500 billion, including around $90 billion for USA alone. The global bank estimates an addition of 0.2 point to global GDP in every $10 decline in oil prices.