The Good And Bad Side Of Falling Oil Prices

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Everybody is happy that oil prices are low but what are its real consequences? Stock markets around the world fell sharply as the prices of US oil reached an all-time low of $50 a barrel. West Texas Intermediate immediately fell to $49.22 while Brent Crude which is the global benchmark fell at $52.08. Experts predict that the prices of oil will eventually reach $40 or even $30 a barrel because of the weak demand for oil and the abundance of supply.

The falling prices are making consumers happy because they are now enjoying low petrol prices. In the United Kingdom, fuel companies are also reducing the cost of petrol and utility companies and airlines are being watched closely to ensure that they drop their prices. According to the Guardian, lower prices of oil will lead to more disposable incomes for families and business costs will be minimized. In the UK, 4 big supermarkets have announced that there will be price cuts which will bring petrol to £1 a liter. In the US, petrol is now below $2/gallon.

However, the falling prices of oil are not all good news. If the low prices are sustained it will hurt the stocks of energy companies and will affect employment. This is beyond expectations and will put too much pressure on the earnings of US energy firms. All the biggest stock losers were on the energy sector that includes Noble Energy, Diamond Offshore Drilling and Anadarko Petroleum. Their problems have escalated since the price of oil dipped at $70 per barrel.

In recent years, the US has increased its oil production significantly through fracking or hydraulic fracturing. As the output increased, OPEC which is the Organization of Petroleum Exporting Countries has not decided not to increase its own rates of production due to the fears of a global glut. At the same time, Europe and China are making the efforts to lower their oil consumption.

The falling oil prices is not only affecting the United States and UK since Asian shares are also starting to fall and the euro is now approaching a new nine-year low against the dollar.

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