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Tumbling Oil Prices, Depreciating Oil Currencies?



Oil prices have fallen abruptly in the past seven months globally. This, leading to a substantial fall in revenues of energy exporting countries. Whereas, in importing countries people have to pay less to heat their homes and run their vehicles.

From 2010 until mid of 2014, oil prices have been fairly unwavering throughout the globe, but since June 2014 they have actually fallen more than the half. For the first time since May 2009 the Brent Crude Oil has fallen below $50 per barrel and the US Crude is below $48 per barrel. Two major reasons behind this may be: rushing US production and weak demand in countries because of dull economic growth.

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Russian Rouble

Russia depending 70% on its exports of oil and gas is one of the world’s largest oil producers. Russia has drastically moved its interest rate from 10.5% to 17%. Russian Rouble has fallen almost 50% against US Dollar this year because of the fallen oil prices. Before increasing the interest rate Rouble was 67 against US Dollar, after increasing the rate it moved up to 58, but again slipped back to 62 against the US Dollar. This shows how greatly Russia depends on its energy revenues.

World Bank has warned that the Russian economy would shrink about 0.7% in 2015 if the oil prices are not recovered, as Russia losses $2 Billion in revenues for each Dollar fall in the oil prices. Regardless of all this, Russia has still announced that it will not cut the oil production to increase the oil prices. The Russian Government has announced a decrease in growth forecast for 2015, and have predicted that the chances are that the economy will go under in recession.

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Venezuela: No Subsidy Cuts

Venezuela is one of the largest oil exporters, but it was already struggling even before the drop in oil prices because of the economic negligence and malpractice. Economy is rolling on the edge of recession with an inflation rate of 60%. The need to cut the subsidies is essential and clear here, but the government has to face some difficult choices. They are reluctant, as the petrol price rise in 1989 lead extensive riots and unfortunately left hundreds dead. The country has some of the world’s cheapest petrol prices.

Saudi Arabia: Price versus Market Share

Saudi Arabia is the world’s largest oil producer and the most dominant and effective member of OPEC. They can support the oil prices globally by cutting down their production, but there are no signs that they will go for it. The two major reasons behind it may be: they want to pressurize the US growing oil and gas industry along with the intention of inculcating some discipline among fellow OPEC oil producers.

They have foreign reserve fund of about $700 Billion and they can survive low oil prices for some time. In 1980s they went for cutting their oil production but it was of no use as it had little effect on boosting the prices, although it badly affected the Saudi economy.

United States: Fracking Boom

US oil production levels are at the highest level in last almost 30 years. The growth of oil production in North America specifically in US is increasing tremendously. One of the major factors in low oil prices is the growth in US oil production. They are extracting oil and gas from shale formations using hydraulic fracking. Even though many of US shale producers have higher prices than their competitors, they still need to carry on to generate revenues to pay off the costs and debts.



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