Seesaw of oil, considered a sign of prosperity or risk

Seesaw of oil, considered a sign of prosperity or risk

Ramón Aduna – February 16, 2015

The price of oil has been considered a sign of prosperity or risk. Many predictions about the recovery of international oil prices this year, and although no one matches the margin, everyone agrees that neither the short or medium term we will see close to $ 100 per barrel prices.


Oil prices lost more than 50% between June 2014 and January this year due to global oversupply pressured Brent from a high of over $ 115 per barrel to a low below $ 46, which trembled member countries of OPEC (Organization of Petroleum Exporting Countries).

The OPEC decided in November not to cut production despite the misgivings of members like Iran. Some members of the group and its allies argued at the time that should hold lower prices to defend its market share. This decision caused even more falling prices, expanding the decline began, as mentioned above, since June, and affecting smaller producers OPEC, which pumps about a third of the world’s oil.

The decision to keep the production quota of 30 mbd in effect since 2012 appears to reflect the imperative of Saudi Arabia embarking on a power play with EU: Riad wants America to adjust their production in response to lower prices but not clearly, it is going to get, at least in the short term. US production costs vary significantly by site, and some estimates indicate that about half of the wells will remain viable with prices of $ 57 per barrel.

The collapse in oil prices has its positive and negative things to different countries throughout the world. No country wins both of cheap oil as China because President Xi Jinping being implemented, to Chinese consumers buy more products made in the country, reforms that will slow its economy and low oil prices will soften the effect of these reforms.

Cheap oil also promotes the campaign of economic reforms in Japan, to reduce costs for consumers and businesses. Also are benefiting ambitious reform plans in India and Indonesia, whose new leaders have promised boost growth after years of unfulfilled promises of change, reducing fuel subsidies. Low prices allow transfer the burden to consumers and businesses.

On the other hand, the downside is that low prices are bad for the governments that rely on oil exports, but some are more vulnerable than others. The Saudis and other Gulf producers lose income if prices do not rise, but they know that the political cost of sanctions on Iran is far superior.

Nigeria and Russia are more complicated. In Nigeria, due to the upcoming presidential elections could lead to violence and the country is increasingly divided. If oil stays at $ 50 per barrel, their problems will worsen and lack the money needed to act. In Russia, a prolonged period of low prices worsen the damage caused by Western sanctions, lack of investment and political isolation. Venezuela is the only country that cheap oil is a direct threat to stability because its oil exports account for over 95% of its foreign exchange.

Although late last year and beginning of this, some experts believed that oil prices would continue in freefall, the trend begins to behave differently. So much so that, from January 30 until Friday of last week, the price of “black gold” has had a rise of 16% in the case of Brent, and 9.4% for WTI.

The Mexican oil closed Friday at his best year, driven by a further fall in the number of operating platforms in the United States. The Mexican crude oil settled at $ 49.97, a gain of 5% over the closing price on Thursday, according to data from Petroleos Mexicanos, the best level since December 15.

As in any market, the price of oil reflects a “game” of supply and demand. Thus, in the long run, the price of black gold will depend on economic factors, production of new supply shocks and new product demand increasing or decreasing of the major world economies are generated.

We just have to wait and see how the seesaw is maintained in the price of “raw gold” and be aware of the actions producing countries thereof and in which much of its economy depends on it, they take to react to these events.