Why oil price is falling ?

After reaching a peak of $147.50 a barrel in July 2008, on wednesday the oil price fell under $70 a barrel . What are the reasons of this event which some economist already see like an opportunity to the relaunch of the economy ?

The main reason is as you can guess the current financial crisis which is leading the global economy to the recession. The US asked for a cut of the barrel's price to permit the economy to be relaunched. Effectively, a cut of this price would mean a decrease of the inflation directly impacted by the oil value. If the inflation decreases then it will be the interest rates which will be automatically lowered and it would thus encourage the borrowers to ask for loanable funds. The decrease of the price of oil appears like a smart solution to improve the economy.

Moreover, this decision seems to be forced now that the consumption of oil is decreasing too, to increase again the demand of it, lowering the price was unavoidable. This fall poses a threat to the suppliers because if the price reach $70 a barrel a lot of new projects will be cancelled or at least postponed!

What real impact will this decrease have? Will the expected effects result?

France's acquaintance with the financial crisis

(Main indexes of world financial market place on october 6th)

Until now the French financial market was not really feeling the impact of the financial crisis. Since October 6th, after a sharp drop of most of the US stock exchange indexes (Dow Jones closure under 10 000 points, FTSE 100, 4589.2) the french stock exchange index, CAC 40, fell to 3711.98 points wich represents a loss of 9.04% which is the biggest drop of its history since its creation in 1988.

For the first time since the begining of the current financial crisis, France is directly impacted. Indeed, the french magazine LePoint, give us some figures concerning the fall of the main companies shares value part of the CAC 40 on this, now famous, monday:

• Crédit Agricole : -10.04 %, 13.84 euros
  
• Société Générale : -11.83 % à 60.52 euros
  
• Natixis : -16.04 %, 2.25 euros
  
• Axa : -13.10 %, 20.07 euros
  
• BNP Paribas : -5.39 %, 67.50 euros

In september, the financial crisis was still mainly american and british, now the french people realise better that the national economy is also in trouble. Until now, even if the CAC 40 was decreasing each month, the french people were still optimistic and believed in a future recovery.

(CAC 40 from novembre 07 to now, source: lesechos.fr)

In answer to this drop the french government decided to create a structure, hold by the state, to back up the banks financially and without deadline. This is the first real measure taken by the french government to face the financial crisis. Will it be enough to save the french structures ? In creating this, they hope to recover the trust of the population in the banking system!

We don't need to argue anymore to constat that on this monday 6th October, France lost its optimism!