Drop in Oil Prices sets off Alarm Bells in Producers and Shareholders

Published Date : Dec 16, 2014

The well-publicized drop in oil prices this week has been celebrated by the masses all over the world as an answer to years of demands. However, the picture is far from rosy on the other side, as oil exporters and shareholders reacquaint themselves with a sub-$60 per-barrel pricing after a considerable hiatus.

Increasing amounts of oil production from countries outside the OPEC (Organization of the Petrol Exporting Countries) is loosening OPEC’s stranglehold over the global petroleum market. Latin America is a particular concern for OPEC, as the majority of non-OPEC petroleum is found in the Americas.

Also increasing is the application of alternate energy sources in place of fossil fuels. These factors have dampened the demand for petroleum, with adverse consequences on petroleum-dependent currencies and stock exchanges. The Russian Rouble and the Indonesian Rupiah, both reliant on the country’s petroleum exports, have fallen considerably - to a record low in the case of the Rouble. Stock market indexes with extractive-industry shares also took a hit, with London’s FTSE 100 falling by 6.3%.

To make things worse for oil shareholders, OPEC decided not to hike up petrol prices by cutting back on production. The powerful Middle East lobby in the OPEC, consisting of Saudi Arabia, Qatar, Kuwait, etc., is the one opposed to a price raise, while Russia and Venezuela, suffering from non-OPEC supply, will need to lower production themselves to force the hand of the Middle Eastern petrol powers. OPEC has decided to ride out the storm of the expected 1.9 million barrels per day supply of petroleum from the Americas, estimating that that the low prices will increase demand, hiking the price back up.