Rising Oil Prices Just the Beginning
Oil prices started moving up just about a year ago up to $ 147.70 per barrel, after prices dropped to the mid $ 20 range. There were a lot of countries who were very happy when the prices started moving up, while other countries were stuck having to borrow money heavily to finance purchase of oil, with Asian countries being the ones who were hit most.
Oil Imports Critical to Asian Economy
Countries besides those located in the Middle East depend heavily on oil imports purchased on the spot. With prices shooting up beyond $ 140, there was a ripple effect that left many countries reeling for funds, because oil is one commodity that these countries cannot do without. Shipping goods depends on oil imports, and when prices increase, it causes the price of goods to increase due to increased price of production and transportation. The effect was a price hike that negatively impacted consumers, who had to borrow money as well.
Concern in the Middle East
Falling prices will be a concern to producers in the Middle East who were flush with funds when the prices were high. Since a fifth of all oil reserves is in the Middle East, they are in a unique position to demand price increases or even declare embargoes and create, in effect, artificial shortages. Countries like Venezuela and producers in the North Sea created problems for those in the Middle East when this happened. Now that oil prices are decreasing, the Middle East faces an economic crisis and it’s bound to cause discomfort.
OPEC Refuses to Cut Production
Oil prices are currently down to below $ 69 a barrel, and the Organization of the Petroleum Exporting Countries (OPEC) has stated that production levels will be held at the current figures with no changes or cuts until their next meeting on December 22, 2009. Producers in the Middle East will no doubt be unhappy with the decision, while oil importers will look to lap up existing reserves in the market at prices that may be better.
Lower Oil Prices May Reduce Countries’ Debts
Countries depending on import of oil for domestic consumption will be happy at the price levels that oil is currently being traded, because lower oil prices will not only help them control the spiraling inflation in their countries, but will also encourage lower loans from international sources. The decrease in oil prices might result in lower prices worldwide, but that remains to be seen. However, some countries have taken the step and reduced domestic prices, while others prefer to wait and watch before taking any action. An example of this is that in India, domestic prices of oil still hover around the mark when oil was traded at its highest. India isn’t looking to borrow money to import oil, largely thanks to the ample reserves they have that could help them through the ordeal even if prices rose again. Borrowing money may still be an option for other countries in the region, as well as seeking help from Middle East producers to meet their requirements.