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  • Drop in oil prices: Game of winners and losers!!



    It is quite clear that much of the world’s economic history could be linked to the change in oil prices, where mainly the good times characterized by high growth, low inflation and full employment are those periods with low oil prices while the opposite is true.

    In other words, oil prices have always been a key determiner during the periods of change in the global economy from expansion to contraction or the opposite, which is so-called the “economic cycle.”

    During this cycle, there are always two teams where at the end of each game there are winners and losers. Logically, oil importers are the gainers and oil importers are losers.

    At the meantime, the global economy has reached a sensitive level of the game as oil prices have not only entered a bearish market, but also may continue its downside direction next year, targeting historical low levels.

    After reaching a high of $107.45 a barrel last June, crude oil prices plunged to a low of $73.21 this week to resume its steep downside trend. Brent oil also plummeted near four-year low this week, following the breakout of critical support at $80 a barrel.

    Global crude prices will likely remain low until 2015, according to the International Energy Agency`s (IEA) Oil Market Report for November.

    “It is increasingly clear that we have begun a new chapter in the history of the oil markets,” the IEA report said.

    To get a better picture about the characteristics of this new chapter, it is pretty important to understand the current situation.

    Winners

    The United States, the world’s biggest economy, has ended its bond purchases in November. Meanwhile, policymakers are in talks about the timing of the first interest rate hike in five years.

    The recent nonfarm payroll report signaled a drop in unemployment to 5.8 percent, the lowest since 2008, while employers added more than 220,000 workers on average each month.

    Actually, the data interprets the benefits reaped from the drop in oil prices as the U.S. economy enjoying some growth, buoyed by higher consumer spending.

    U.S. shale boom has lifted output to its highest level in three decades to just over 9 million barrels per day, the U.S., which is quite close to the 9.6 million barrels per day output produced by Saudi Arabia, OPEC’s biggest oil producer.

    Following several years of importing 13 million barrels a day, the U.S. will export around 1 million barrels a day in 2015. For sure, this shift would make a tremendous change in the oil market.

    For now, the U.S. would get a winner mark and may continue to retain this signs for the upcoming years.

    Another important reason behind the recent sharp slump in crude prices comes from the demand side. Still, global demand is weak amid the current slowdown in China’s growth and myriad financial problems in the eurozone.

    The European Central Bank has announced a number of stimulus programs, including the new ABS purchases starting this months, while the Bank of Japan is set to launch a new unconventional momentary measures to bolster growth after the world’s third-biggest economy relapse into its fourth recession since 2008.

    As both eurozone and Japan tend to shore up their economies, the fall in the black gold come at their expense, making them eligible to get a gainer sign.


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