The price of oil has fallen rapidly in recent months, dropping from $115 a barrel in June to below $65 in December. Despite the Chinese market constitutes 20% of world demand, the recent fall cannot be attributed, at least in large part, to a sudden change in the composition of demand. Rather, for to find the causes of this dynamic one must look at the supply side, distinguishing between supply-related causes and deeper structural factors.
Libya more than quadrupled its production in the summer and now heading towards its pre-civil war level that erupted in 2010. Iraq, in turn, has begun to ramp up production, despite unrest in the northern part of the country. However, interruptions persist in other historical exporters, for example in Syria and Iran for geopolitical reasons and in Canada and the North Sea for technical reasons. But other factors factors have come to the fore. A real revolution is underway on the supply side, with US oil production steadily increasing. US net oil imports fell from 12,5 million barrels a day at their peak in 2005 to 5,5 million barrels last September. Particularly affected are imports from West Africa, while production levels in the US market now stand on the same level as that of Saudi Arabia. In this scenario, the critical price level fell from $90 to $70 a barrel.
on your part, Saudi Arabia has offered significant discounts for the Asian market, in an apparent attempt to maintain its market share, however according to Atradius it cannot afford a lower price. The meeting called by the OPEC countries was held in Vienna on November 27 did not lead to any definitive stance in a scenario where they would have had to agree to keep 5% of production off the market to allow a price recovery of 100 dollars per barrel. Here then is that in the absence of profound changes, prices are expected to be low for the near future. The only current risks come from geopolitical factors that could potentially affect supply, see in this sense the activity of the Islamic State in the Middle East region, even if up to now the Iraqi oil complexes in the south have not been hindered. Secondly, le EU and US sanctions imposed on Russia may pose a danger to production in the medium term.
Lower oil prices, as such, are good news for the global economy. A price reduction of 10 dollars a barrel translates into further growth of 0,5% with positive repercussions also on consumption. However, this may not be enough in those countries in the Eurozone where the debt burden still weighs: the positive implications on economic growth will then be seen in the future, as long as you deeply and timely solve the local implementation of the necessary structural reforms.
Naturally, importing countries and sectors benefit from a lower oil price, in this case the EU markets, with annual import estimates of 500 billion dollars which will be reduced to 400 billion if the price per barrel remains at 85 dollars per barrel. For the USA, the scenario is ambiguous, as they find themselves acting as both producers and buyers. Petrochemical products and, of course, Transports are those sectors that are associated with the greatest benefits. To benefit from the situation is also the same China, which in these conditions sees the price of imports fall by 3%, a decrease of 60 billion. Furthermore, the deflationary impact of lower oil prices mitigates the general high level of prices in emerging countries such as India e Indonesia, with large agricultural sectors and high fertilization and hydration costs. And if the weight of this situation will be sustainable for Middle Eastern producers able to handle the drop in prices, thanks to low production costs, the heaviest repercussions are affecting markets such as Brazil which need high prices to support deepwater exploration. Finally, Russia also appears vulnerable, albeit in the medium term.
