Impact of Falling Oil Prices on Key Importing and Exporting Regions

Published Date : Dec 22, 2015

Oil prices have declined sharply in the past seven months. This has led to many revenue shortfalls in the global oil market. Oil prices remained stable from 2010 to the mid of 2014. However, now the price of Brent crude oil have declined drastically and are noted at US$50 a barrel for the first time after May 2009, while the US crude price has fallen to below US$48 a barrel.

The main factors behind this drastic decline of crude oil prices are weak demand in several nations due to insipid economic growth and rising production in the U.S. Another factor that is adding to the decline in the oil prices is that OPEC has decided not to cut production, which would have led to rise in oil prices.

Declining oil prices is good news for oil importing places such as China, India, Western Europe, and Japan. However, it is bad news for oil exporting nations such as Kuwait, Venezuela, Nigeria, and Iraq. Nevertheless, reduction in oil prices can help to reduce the cost of living. This trend of falling oil prices is one of the reasons responsible behind the recent decline in inflation in the U.K. On the other hand, countries such as India that imports a majority of their oil will be able to reduce their present account deficit.

Oil exporting nations such as the UAE and Saudi Arabia have presently built up a substantial amount of foreign currency reserves. Hence, they are in a position to afford temporary declines in oil prices and have yet not responded by cutting out their output.

Generally, falling oil prices would be good news for oil importing nations; however, many of these countries are fearful about prospects for the European and global economy. This trend reflects a weak global demand for oil and sustained low growth globally is holding back the demand. It is projected that falling oil prices could delay investment into alternative energy sectors such as electric cars. In addition to this, falling oil prices can lead to a reverse in the recent decline in car use, in turn, steadily driving traffic congestion along with environmental costs of petrol use.