Qatar’s Minister of Energy and Industry H E Dr Mohammed bin Saleh Al Sada, who is also the acting President of Opec, said on Sunday that oil prices have bottomed out and there are clear signs of a recovery in 2016. Dr Sada based his optimism on the latest oil market data and on an uptick in global growth. First, he said, supplies from non-Opec producers have dipped substantially this year and the trend is likely to continue next year. Secondly, global GDP growth is likely to jump to 3.4 percent in 2016 from 3.1 percent this year. Kuwait’s Oil Minister Ali Al Omair too echoed the same sentiment. He said there are indications that a lot of high-cost production is starting to get out of the market and this would help boost prices.
Both ministers’ statements point to the direction the energy market is heading. But the problem is that oil prices, like other fickle markets, have a tendency to defy predictions and forecasts. The current slump wasn’t expected, at least the depth of its plunge. Oil producers and energy companies were caught off guard and were pushed into taking measures they hate. There have been layoffs globally, new projects have been either curtailed or shelved and budgets reduced as prices plummeted by more than half. North Sea Brent crude dropped to almost $42 a barrel in August, from a peak above $115 in June 2014, rallying back to an intraday high of $54.05 on Friday. Gulf countries too have been hit, making governments redraw their fiscal plans .
Oil falls always evoke two reactions: euphoria in consumer countries and concern in producer countries. Steep price increases inevitably lead to inflation, which put governments in a bind. But has the current price falls been useful? Not much. The harsh reality is that end consumers haven’t benefited much from the current price bloodbath. While prices are at the bottom of the barrel in the international market, they continue to be very high in several consumer countries as governments refuse to pass the benefit to the people, or pass only a small percentage. This means low oil has become a godsend for corrupt and inefficient countries all over the world as they use the extra income to cover up the huge deficit caused by years of fiscal mismanagement and profligacy.
One industry which has benefited hugely from oil fall is the airline sector and several loss-making airlines all over the world are now flying into profit and profit-making airlines are flying over abundant cash. At the same time, airfares continue to remain high.
Low oil benefits only a few, while it wreaks havoc with the budgets of energy companies and producers. The damage it causes to the latter will finally filter down to haunt the former.
Qatar’s Minister of Energy and Industry H E Dr Mohammed bin Saleh Al Sada, who is also the acting President of Opec, said on Sunday that oil prices have bottomed out and there are clear signs of a recovery in 2016. Dr Sada based his optimism on the latest oil market data and on an uptick in global growth. First, he said, supplies from non-Opec producers have dipped substantially this year and the trend is likely to continue next year. Secondly, global GDP growth is likely to jump to 3.4 percent in 2016 from 3.1 percent this year. Kuwait’s Oil Minister Ali Al Omair too echoed the same sentiment. He said there are indications that a lot of high-cost production is starting to get out of the market and this would help boost prices.
Both ministers’ statements point to the direction the energy market is heading. But the problem is that oil prices, like other fickle markets, have a tendency to defy predictions and forecasts. The current slump wasn’t expected, at least the depth of its plunge. Oil producers and energy companies were caught off guard and were pushed into taking measures they hate. There have been layoffs globally, new projects have been either curtailed or shelved and budgets reduced as prices plummeted by more than half. North Sea Brent crude dropped to almost $42 a barrel in August, from a peak above $115 in June 2014, rallying back to an intraday high of $54.05 on Friday. Gulf countries too have been hit, making governments redraw their fiscal plans .
Oil falls always evoke two reactions: euphoria in consumer countries and concern in producer countries. Steep price increases inevitably lead to inflation, which put governments in a bind. But has the current price falls been useful? Not much. The harsh reality is that end consumers haven’t benefited much from the current price bloodbath. While prices are at the bottom of the barrel in the international market, they continue to be very high in several consumer countries as governments refuse to pass the benefit to the people, or pass only a small percentage. This means low oil has become a godsend for corrupt and inefficient countries all over the world as they use the extra income to cover up the huge deficit caused by years of fiscal mismanagement and profligacy.
One industry which has benefited hugely from oil fall is the airline sector and several loss-making airlines all over the world are now flying into profit and profit-making airlines are flying over abundant cash. At the same time, airfares continue to remain high.
Low oil benefits only a few, while it wreaks havoc with the budgets of energy companies and producers. The damage it causes to the latter will finally filter down to haunt the former.
