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Cheaper oil, who will lose?

(People's Daily Online)    10:13, October 28, 2014
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The plummeting oil price has deeply harmed oil exporters with its negative impact on oil security. Meanwhile, it might also adversely influence oil production trends and energy security. Since June, the price of crude oil has dropped by 25% and is in long-term decline – the impact has been significant on many countries.

Russia’s president Vladimir Putin said the country can bear the pressure of declining oil price; Venezuela has imported oil for the first time in more than 100 years. A loan to Venezuela offered by China is likely to be postponed. The negative impact on oil exporters is apparent. Gulf States such as Saudi Arabia and Kuwait, however, seem calm. Saudi Arabia believes it can sustain two years of falling oil prices, while Kuwait claims that cheaper oil has had little effect. Those countries which abound in oil and gas but which have backward economies will harvest huge profits when international energy prices soar; when prices fall they will lose dramatically. The falling price will save oil consumers 25% and reduce the influence of energy costs in economic development. In other words, the world economy is less dependent on energy. In developed countries, tertiary industry plays a dominant role, and human resources as well as intellectual resources are the key.

Cheaper oil also leads to changes in global energy consumption. China, as one of fastest growing consumers, is suffering from an economic slowdown. On the other hand, the stronger US dollar that prices international energy can cause the oil price to fall.

Cheaper oil is imposing double pressures on countries such as Russia and Venezuela because it will hammer their economic base. The stronger US dollar combined with a falling Russian ruble is depressing a Russian economy that is already subject to financial sanctions imposed by the US and Europe. Although Russia is sitting on foreign exchange reserves of 450 billion US dollars, this does not cover its debt. Putin’s plan that the money earned through oil exports can go to into its Federal Reserve Funds and national welfare has been derailed as a result of capital outflow and reduced revenues from oil exports. The falling oil price also has significant impacts on oil production pattern and energy security. First, the high oil price contributed to R&D and production of other alternatives. Without the sense of crisis over “the last barrel of oil” caused by the high oil price, there would have been less R&D in shale oil. Moreover, cheaper oil also provokes thinking. It’s necessary to take into account the cost of maintaining a sustainable oil supply. Buying an oil or gas field or hoarding excess oil at any cost is not a reasonable move.

This article was edited and translated from 《油价下跌,谁的危机?》, source: The Beijing News, Author: Sun Xingjie

(Editor:张媛、Liang Jun)
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