Oil: The Good, the Bad and the Ugly!

So Russia fears a recession while IMF chief Christine Lagarde thinks the fall in oil prices is indeed good news for the global economy.

Both are perhaps right – with Russia already smarting under sanctions and the Rouble at a record low as lower oil prices hit its bottomline. As a major non-OPEC producer, Russia had itself ruled out a cut in production.

Historically, all recent recessions were preceded by a sharp spike in oil and commodity prices, so the IMF’s optimistic projection may not be off on a tangent. Maybe there were other factors – higher prices usually strike at the ability of a consumer to spend and lead to a drop in consumption. This goes beyond fuel-linked spending.

US self-centricity?: So, it beats me why the U.S. and other advanced economies were applying pressure on OPEC to cut production which the latter did not succumb to. Did they have any self-centricity tied to it?

Oil prices have been holding up well the last few days despite some volatility and there are projections that they will start climbing again and reach $100 a barrel within a year.

Some are not even ruling out a cut in production even before OPEC’s next meeting in June 2015!

Y2K Bug Over-Reaction?: This reminds me of the panic over the feared Y2K Bug decades before the start of the new millennium. Planning for the worst is a positive sign, demonstrating visionary leadership and preparedness to avert any catastrophe.

1973 oil embargo and shale revolution: If we hark back to the 1973 oil embargo when the Arab countries banned crude exports to the US and other advanced economies over their support to Israel amid the raging Palestinian issue, we will see the beginning of the shale revolution.

The US was already a big oil producer but it was nowhere near self-sufficiency. The ban lasted just about a year but an acceleration in domestic production was already under way.

New Technologies, More Fields: New drilling technologies were developed and shale oil fields emerged to add to the conventional production. Oil independence then became a possibility.

The benefits of effective planning with foresight were in focus. It is only when planning goes over the top that we begin to nurture misgivings about the strategy.

Excessive speculative activity, as we are already seeing post-OPEC meeting, thanks to the power of 24/7 new media coverage, only adds to the global unease over any feared recession!

G Joslin Vethakumar

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1 Comment

Filed under Finance, News and politics

One response to “Oil: The Good, the Bad and the Ugly!

  1. Pingback: To Cut or Not to Cut? No Dilemma for OPEC! | Top of the Word

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