Crude Oil Prices Slip As Doubts Grow Over Saudi, Russia Truce? Surely, the recent break in the relationship between Saudi Arabia and Russia will not last long and the rest of the world will still rely on these two countries for their crude oil needs. Well, let’s take a look at what actually happened.
The recent collapse in the prices has forced the producers, or the producers’ as they are called in the petro-economy, to adjust their spending budgets by cutting back on capital expenditure in the petro-economy. At the same time, the oil producing countries are investing less in making investments in developing their own domestic production and exporting oil instead.
In the petro-economy, the prices have affected the interest rates, but they cannot be paid directly by the consumers. The citizens, who are the main consumers, pay their utility bills and other expenses. These costs are passed on to the consumers.
The oil prices are the basis of the economy of a country and, consequently, the level of employment is determined by the rate of inflation and the number of consumers in the country. When the oil prices are low, the prices are relatively high, and when the oil prices are high, the prices are relatively low.
Because of the falling oil prices, many countries are reducing their consumption of oil. They are cutting back on the amount of capital investments that were made in the oil industry. However, as the oil prices fall, the prices are increasing and, at the same time, the petro-economy’s consumption of oil is increasing.
They must compensate for this by increasing their investments in their own petro-economy. This is exactly what happened in Russia. Sincethe oil prices fell, the capital investment fell and, since it cannot be recovered through capital expenditure, the oil producing countries had to increase their spending.
In the long run, oil prices also will rise again as the number of consumers increases, as the economies of the petro-economies develop and, finally, as other nations develop economies based on other natural resources. The ultimate result will be oil prices of around US$ 100 per barrel.
The current price of crude oil prices is the lowest since 1991. Since there was a huge discount on the previous prices, the oil producers are at a loss. This indicates that they need to raise their investments and, consequently, raise the prices of crude oil.
It is also possible that the OPEC countries, which are non-OPEC producers, will hold a meeting and decide to raise the crude oil prices, as they believe that the current oil prices are low enough. One thing is for sure – prices will shoot up because of this increased demand.
The crude oil prices have fallen, but it is already too late for the oil producers to avoid paying the debts they have incurred due to their dependence on foreign countries for their crude oil requirements. The Middle East will become more unstable if they do not react. Therefore, the governments of these countries will be forced to tighten their belts and introduce more taxes in order to maintain stability.
The oil producers are facing a major crisis because of their increasing dependence on the nations that are no longer willing to supply them with crude oil. If OPEC does not loosen its policy, crude oil prices are expected to rise as investors and traders will begin to hoard their assets in these nations.
Well, the United States has a lot of assets in these oil producing nations so we should keep this in mind. There is a chance that crude oil prices will increase as the petro-economy develops further. As we have just seen, it is still too early to say whether the crude oil prices will slip or whether they will continue their climb.