A renewed plunge in oil prices is a worrying sign of weakness in the global economy that could shake governments dependent on oil revenues. It is also a panacea as pump prices fall, giving individuals more disposable income and lowering costs for many businesses.
Partly because of the shale-oil boom in the US, the world is awash in oil; but demand from major economies is weak, so prices are falling.
The latest slide was triggered by the Organization of Petroleum Exporting Countries’ (Opec) decision on Thursday to leave its production target at 30 million barrels a day. Member-nations of the cartel are worried they’ll lose market share if they lower production.
Brent crude, a benchmark for international oils, was at $72.50 a barrel on Friday, down nearly 30 percent in the past three months and at its lowest in four years. US crude oil slid 7.5 percent to near $68 a barrel on Friday, and is down 27 percent over three months.
Opec countries and other major oil exporters will feel the biggest negative impact. In Asia lower oil prices are unambiguously positive for trade balances and government finances as the region is a major oil importer and some nations subsidize the price of fuels. But there are also some possible negatives.
Japan
At the Esso filling station in Shimbashi, near the glittering Ginza shopping strip in Tokyo, prices remain relatively high. Japan is reliant on foreign oil, but due to import contracts there is a lag in cheaper crude filtering down to consumers. Also, a recent drop in the yen’s value will reduce the savings Japan can reap from lower oil prices. In June regular gasoline cost $1.40 a liter ($5.29 a gallon) at Shimbashi. The price rose to $1.46 a liter ($5.53 a gallon) in July and was $1.44 a liter ($5.44 a gallon) on Friday morning. Prices are expected to fall but this welcome relief for households and businesses will complicate the government’s efforts to end Japan’s deflation.
China
Beijing has cut prices repeatedly this year in line with declining crude prices. The Cabinet adjusts retail prices when crude changes by at least $1.15 a barrel over a 10-day period. On Friday in Beijing, highest grade gasoline cost $1.20 a liter ($4.54 a gallon). In June the price in the Chinese capital was $1.35 a liter ($5.11 a gallon). Cheaper fuel would ease financial pressure on manufacturers and small businesses at a time when economic growth has declined steadily over the past two years due to weak demand for exports and government efforts to cool a construction boom.
AP