The topic of low oil prices has come up a few times. Always an interesting, but probably impossible to really understand.
My personal view (and if I knew everything I would work in City/Wall Street) and I’ll try not to exaggerate.
- It’s happened before … more than once.
- It proves that forecasting, especially about the future, is difficult. “Economists didn’t see this coming”. Humm.
- It proves that when politicians try to drive a market, they will fail.
Thank goodness that the “price freeze” advocated by some did not go into
force. We’d be stuck with those high and frozen government-mandated
- It shows the fallacy and illogicalness of some governments’ policies
for energy and power, e.g. in Scotland we are abandoning low-cost energy
and power and adopting (permanently) high cost energy and power …
which is likely to significantly increase poverty, unemployment, and
death (cold homes kills).
- It probably accelerates the decline of the North Sea and oil and gas jobs in
Scotland/UK will disappear soon, and probably permanent. Quite a lot of valuable
oil and gas known to exist under the North Sea will be stranded as the
cost to produce is just too much.
- The economy might be positively stimulated by the money it frees up to consumers
and industry … but government might quickly fill that void by
increasing tax as there is now a significant tax shortfall caused by
reduced oil prices and production. Jury is out.
- There is increasing pressure on businesses to now reduce their prices
since customers know that business costs ought to be lower, hence business
are “expected” to ignore economics and free enterprise and charge based
on costs and not charge based on market price. That’s a theme I see
expressed by some politicians. (which is better? dunno. I guess from
point 1 above, to do anything other than market price is risk, but what
do I know)? If prices then are forced down by whatever reason, it
increases the risk of deflation–which nobody wants.
- “fat” companies will fail and the best performers will get leaner and
perform better (saw this happen in mid 1980’s when same thing happened)
- I notice stock markets in City and Wall Street are uncertain if low
oil prices are good or bad (note the recent volatility). I don’t know
- I suspect development of alternative energy and power methods are at risk.
The world now seems to be at a funny place.