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?
2 comments:
It is very strange because this fall must also be corrolated to the dollar slump. Generally, the dollar and the oil price have an inverse relation. When the former skyrocket, the latter slump. Because if the dollar decrease, the OPEC wants to preserve their revenues. But this time, it is not the case. When the barel reached $147, I think that the oil price was for a larger part speculation !
What should be the real price of a barrel? That is the question. I really don't understand this huge price fluctuation because in this short period of time. In fact because it's not real and it's not the consequence of market laws, i.e. supply and demand. This big fluctuation is also a proof of wild market,where you are leaving and nobody is capable of explaining what's happening because the situation is not real.
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