The rout in crude oil prices shows little sign of stopping. The price for a barrel of Brent crude is flirting with the sub $28 level, having dipped under the price in yesterday’s trading. Brent started the year at $37.3 - a 25% decline in just three weeks.
The falling oil price and continuing concerns about the trajectory of the Chinese economy have been blamed for the declines seen in global stock markets. The Nikkei fell by a further 3.1% in yesterday’s trading, closing at 16416 points and erasing all its growth since November 2014.
The weak crude oil price is broadly good news for industry and consumers. Transportation costs for goods will have declined, but it is fair to say that the huge reductions in the barrel price for crude have yet to be registered at petrol pumps, although prices have fallen significantly. Similarly, the cost of energy production from oil, which is used to generate roughly 5% of global needs, should also come down (gas is 22% and nuclear 11%). Products (and feedstocks) produced from crude oil should also be cheaper and some of these savings have fed through to the economy and led to suppression of inflation in many countries.
On the negative side of the ledger, industries which service the oil and gas sector are suffering, as are oil companies, of course. In some oil fields, the decline in the price for crude means that exploitation of the reserves is no longer economically viable. Indeed, some experts believe that Saudi Arabia is happy to see the crude price tumble in a bid to choke of oil production from shale oil deposits (by fracking) and strengthen its hold on global oil production.
The lifting of sanctions against Iran as a result of its compliance with the international community over its nuclear ambitions will also increase crude supply at a time of glut. Iran is believed to have significant stockpiles of crude which could be placed on the international market quickly, further weakening the crude price.