Oil
& Gas
Opinion:
The oil price trap
It rarely happens that so much is spoken about the
price of oil in one year. It isn't surprising, given the dramatic price fall.
But an improvement is not in sight and 2015 could be turbulent, says DW's
Henrik Böhme.
Drivers have been overjoyed in recent weeks, with the
cost of a tank of gas down significantly since the beginning of the year. And
the bill for heating oil is also currently much lower than it has been in the
previous year. Oil industry experts estimate that German motorists alone have
saved around 5 billion euros ($6.1 billion) in fuel costs this year.
The money saved is then spent on other things, which
in turn boosts domestic demand and leads to a positive effect on the economy.
And Germany's exporters also have a reason to rejoice. While the euro's
exchange rate has depreciated significantly, exporters are able to sell their
products at much cheaper prices. Against this backdrop, an increasing number of
economists have revised their growth projections for the German economy upwards
for the coming year. Does this mean 2015 will be a good year for Germany - and
with it the entire eurozone?
It's unlikely that the price of oil will remain low.
Markets worldwide have already become extremely nervous, as seen by the violent
ups and downs of stock markets in recent weeks.
If prices were to fall further, then the eurozone
could fall into a dangerous deflationary trap. In expectation of falling
prices, people might refrain from major purchases and companies could shelve
their investment plans.
Henrik Böhme, DW's head of online business news
This would cause a fall in demand, leading to a
further decline in prices. The end result could be a long period of stagnation,
similar to that experienced by Japan, the world's third largest economy.
Another source of danger is the oil-producing
countries such as Venezuela and Russia, which are more dependent on oil
revenues than other nations. In Russia, the cocktail of sanctions and declining
oil prices is already having a tremendous impact. In addition to a plunging
currency, the country is also facing problems due to capital flight and a loss
of investor confidence in its economy.
Anyone who still believes that a bankruptcy of Putin's
empire would not have an impact on the West is wrong. The current situation is
reminiscent of the last big emerging market crisis in the late 1990s. At the
time, the International Monetary Fund and the World Bank jumped in to help the
Russians by offering them billions of dollars. But that would be highly
improbable this time around, given the current geopolitical situation.
If Russia were to become insolvent, then economists
will have to entirely rewrite their economic forecasts. The US, also an
oil-producing nation, has turned into a very important crude producer since the
dawn of the fracking era. America is also partly responsible for the oversupply
on the oil markets, and thus for a collapse in prices. But real danger is
lurking even in the US - the fracking industry has issued high-interest loans
to finance its expensive technology.
If prices continues to fall, at a certain point
fracking will no longer remain commercially viable. Should companies then file
for bankruptcy and be unable to service their debts, it could lead to a
financial crisis similar to the crash of the US housing bubble in 2008.
And one more thing: Although it's nice to have lower
oil prices at the moment, it's not a good sign to see a huge jump in the demand
for gas-guzzling automobiles. The low price makes us forget that oil is a
finite and dwindling commodity. It also draws governments and companies away
from investing in new and renewable sources of energy.
We can therefore only
hope that the price of oil will once again start to rise in the new year and
leaves its current absurdly low level. Should it not happen, then the price
swings of the last weeks of 2014 are just a foretaste of what's to come in
2015.
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