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| Image source: kgns.tv |
The low prices of crude, seemingly auguring gloom at first glance, hold forth silver linings. The prices signaled by the glut have led to an interesting turn of events, some of which could be taken positively.
Signaling the glut's ultimate end would be the eventual rise in demand that would stabilize prices. Demand is produced by increased economic activity in turn pushed by lower energy costs. In some places, this hopeful turn has already begun to manifest itself.
The low prices of oil imports, for instance, have enabled the United Kingdom to reduce its trade deficits. The falling prices of petroleum products led to the subsequent decrease in the prices of many imported goods; average import prices to the country in early January declined 2.5 percent. These scenarios have huge ramifications for the British economy, whose growth prospects would now be unencumbered by the cost of trade.
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| Image source: cityam.com |
Another effect of the oversupply of oil in the world commodities market is the lack of change in prices caused by tumultuous events in oil-producing nations. Historically, volatility in oil producing nations could cause pricing uncertainty due to the drop in supply. Due to the excess supplies, the confrontation between Saudi Arabia and Iran has yet to significantly impact the price of global crude.
Should the rates of production continue long after prices stabilize, fluctuations caused by regional tensions may become a thing of the past.
Ultimately, while the world of cheap oil is unlikely to be permanent, the industry itself isn't out of the woods yet. A recovery is in the horizon, though would largely remain gradual for the next few years.
Brian Alfaro currently serves as President of Primera Energy LLC. For more updates on his company and its operations, visit this website.
