The price of a barrel of crude oil has fallen to about $40, its lowest level in four years, as demand falls due to the global financial crisis.The contract for light, sweet crude for January delivery closed at $40.81 a barrel on the New York Mercantile Exchange on Friday, a drop of $2.86 on the previous day's trading. But at one point during Friday’s trading the contract fell to $40.50, its lowest level since December 2004.Meanwhile, the London contract for Brent North Sea crude for January delivery fell by $2.54 to round off the day at $39.74 dollars, its lowest price since January 2005.
Global slowdown
The precipitous fall in oil prices – from a record high of over $147 a barrel on July 11 – comes as businesses across the world cut jobs in an effort to survive the global economic slowdown.As oil prices fell on Friday, the US labour department reported that 530,000 people fell out of work in November.The US unemployment rate now stands at 6.7 per cent, its highest level since October 1993.The fall in oil prices and industrial output, along with higher than expected levels of unemployment in the world’s biggest economies, have led analysts to predict that the global recession will be a protracted one."The wild bull era is over," Phil Flynn, an analyst at Alaron Trading, said.The decline in oil prices comes after the Organisation of the Petroleum Exporting Countries (Opec) put off a decision on reducing oil output until December 17.
Demand sinks
A sharp rise in oil prices in the first seven months of 2008 was due to strong global economic growth, cheap money and available credit, Flynn said.But since the global financial crisis began in September, primarily in the banking sector, lines of easy credit to businesses have evaporated, hitting demand for crude."We are now entering a new era of lower and more stable oil prices for years to come. That does not mean we will not see other bull markets along their way but get used to the markets trading different than they did throughout most of this decade," he said.
The International Energy Agency (IEA) on Friday lowered its projections for global oil demand in 2008-2013. It said that demand for oil products would climb from 86.2 million barrels a day in 2008 to 91.3 million in 2013, revising downwards its July forecasts.The US, eurozone and Japan are already in recession and investors are concerned that oil prices could sink as low as $25 a barrel if the global downturn hits major emerging countries such as China and India.
Lower Oil prices may seem like a good thing when you are at the pump, but it can have disastrous side effects, not only because it decreases the push for alternative energy options, but because there are many countries in the middle east whose economies are on the brink. one of the only things that has kept them from collapsing years ago is their oil revenues. already some of these countries (Saudi Arabia) have almost 50% unemployment and when their economy gets worse, so will the unrest and violence that it triggers. If the US is truly committed to peace in the middle east, it should be ready to help these economies move away from oil dependence so that crises or the introduction of alternative energy to not the starting point of tremendous economic suffering and civil unrest in the region.
1 comment:
The US should try and help countries such as Saudi Arabia wean themselves off of oil but the only way we can do that is by creating a sustainable and healthy economy for ourselves that is not dependent on oil, because as long as we are dependent on oil we will have it affecting our foreign policy in ineffective and destructive manners such as propping up states such as Saudi Arabia.
Post a Comment