Mohamed Hassan Recession in Russia, Revolt in Venezuela?
The effect of tumbling oil prices article 6
Summary: The sudden slump in oil prices, which have fallen 15% in the past three months, has sent tremors through the capitals of the worlds great oil powers, many of whom could face testing budget crunches if the tendency persists. Higher output coupled with weaker demand from China and Europe has driven the price of crude down to $85 its lowest for four years. The US also now produces 65% more oil than it did five years ago following the boom in shale production. The rise has contributed to the global glut of crude and allowed the US to import 3.1 million fewer barrels of oil a day compared with its peak in 2005. Prices are now well below the level on which many oil exporters have based their budgets. Analysis: As we discussed, among the factors of production (things that enable us to produce goods or services) included land and natural resource where oil belongs. In the market structure (the number and size of firms in an industry) we discussed that the oil industry falls under oligopoly (a type of market structure in which a particular market is controlled by a small group of firms) High output of crude oil and a decrease in Quantity demanded (total amount of goods and services that are demanded at a given point of time) has led to low prices. This is because producing countries' get rid of the excess oil in the reserves at low prices. The oil industry is a macroeconomics subject (economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole) this is because it affects the economy as a whole. Organization of oil exporting countries (opec) is a wellknown cartel (a formal organization of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics). OPEC seeks to maintain price stability (absence of significant changes in the average price level) and avoid fluctuations. A good example is Saudi Arabia and Venezuela in the production of oil. Saudi Arabia is efficient in producing oil, whereas Venezuela, governed by a communist government, is highly inefficient, so it would be very difficult for Venezuela to accept a price that would be suitable for Saudi Arabia. Consequently, there is a great temptation for inefficient producers to cheat, and if they cheat, then price competition Cheating by some member countries like Venezuela to increase individual profits (difference between total revenue and total cost) will lead to fall in prices of oil. Discovery of oil wells in Alaska, and in other countries introduced alternative (substitute) for Opec oil causing a fall in their prices and lower profits by members. Unemployment (the state of being unemployed) could rise as those employed by the sector reduces. Trade restrictions (A governmental policy to control market or trade) and sanctions on exports (goods and services sold to foreign buyers) of countries like Iran and Russia will further impact their economy and add pressure on their scarce resources (lack of enough resources to satisfy all desired uses of those products). The fall in oil prices will impact the GDP (The monetary value of all the finished goods and services produced within a country's borders in a specific time period) of producing countries like Iran, Venezuela, Saudi Arabia and Russia due to less profit from exports. On the other hand, it will boost the importing countries'(imports are goods and services purchase from foreign countries) GDP due to less expenditure on importing crude oil. Among these countries are China, India and South Africa among others.