World oil prices fall and impacts on the global economy

(Baonghean.vn) - Crude oil prices in the US and world markets have continued to fall to an unprecedented low since 2012 in recent days. What is the reason for such a drop in oil prices and how will the devaluation of this "black gold" affect the global economy?

According to data from the New York Mercantile Exchange, by the end of November 3, the price of crude oil for December delivery fell by $1.98 to $78.56 per barrel. This is the lowest level of this fuel since mid-2012. Brent oil also fell by $1.38 to $84.28. Thus, in October alone, crude oil prices have fallen by a total of 12%, the largest decline in a month since May 2012. Since the beginning of the year, oil prices have fallen by a total of 20%. There are many factors that have caused the price of "black gold" to plummet. First are factors originating from the US and Chinese economies. The US dollar has been increasing continuously over the past week, even reaching a seven-year high against the Japanese Yen and a two-year high against the euro. In the past, when the dollar depreciated, oil prices increased. Now, when the dollar appreciates, oil prices decrease. Global energy history has also shown that every time the dollar increases, crude oil prices decrease.

In addition, China's announcement that the operating capacity of factories in the world's second largest economy in October fell to a five-month low due to falling orders and rising interest rates was also a reason for the decline in oil prices. Investors are worried that the Chinese economy is losing momentum, and that this year's GDP growth will be difficult to reach the target of 7.5%.

Another factor is that demand tends to decrease but supply increases because unstable oil exporting countries such as Libya, Iraq, South Sudan and Nigeria have now surprised by maintaining oil production even when the domestic situation is unstable or there is an oil surplus at a time of low demand. In Iraq, despite the instability caused by having to deal with the self-proclaimed Islamic State (IS), oil exports from the southern region this October are about to reach a record level, at 2.55 million barrels/day (the record is 2.58 million barrels/day). Or the North African country of Libya, which has always been in turmoil, especially since the overthrow of dictator Muhammad Gaddafi, has also recovered oil production to 900,000 barrels/day at the end of September and is forecast to reach 1.5 million barrels/day by the end of this year. In addition, Nigeria and Angola have also increased their oil production.

Another reason for the drop in oil prices is Saudi Arabia's decision to reduce the price of oil sold to the US, a move that is believed to be aimed at competing with shale oil from the world's number one economy. This is a signal that Saudi Arabia - the world's largest oil supplier - is more interested in maintaining market share than cutting production to maintain oil prices. However, there are also opinions that the US and Saudi Arabia have had a "secret" agreement to reduce oil prices to put pressure on the economies of rivals Russia, Iran and Venezuela, in the context of their economies being heavily dependent on energy exports. It is impossible to say for sure what each side's calculations are, but it is clear that the Russian economy could be affected when world oil prices fall sharply. With each barrel of oil falling by $1, the Russian budget will lose $2 billion. Russian Finance Ministry officials estimate that the drop in oil prices will reduce the country's GDP growth by 2%.

The drop in oil prices will also affect Venezuela. In fact, the country needs to maintain oil prices at $110 per barrel to cover budget expenditures, balance the prices of imported goods, thereby helping to stabilize the social situation. If oil prices continue to remain low for a long time, Venezuela may have to consider selling its gold reserves or proposing more attractive terms in exchanging oil for loans from international partners, especially China. From another perspective, experts say that the drop in oil prices will make economies that depend on oil export revenues worried, but on the contrary, it will be a beneficial factor for the world economy, a factor to promote growth for economies, thereby creating balance in the global economic picture. According to the International Monetary Fund (IMF), cheap fuel stimulates production because a 10% change in oil prices will cause global GDP to fluctuate by about 0.2%.

Thus, it can be seen that the increase or decrease of oil prices depends on many factors. In addition to technical factors such as supply and demand, oil prices are also an important economic card between major countries to "bargain" with each other for political purposes, especially in the context of many hot spots appearing in the world as it is now. Therefore, it is also very difficult to make long-term forecasts about oil prices, which are not only a necessary fuel for the world but also considered a strategic commodity in the global geopolitical war.

Huyen Chi