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Falling oil prices: Who are the winners and losers? Falling oil prices: Who are the winners and losers?
(2 months later)
Falling oil prices mean that some oil exporters are bracing themselves for significant revenue shortfalls, while some importing countries could benefit economically as consumers pay less for energy and have more to spend elsewhere. Global oil prices have fallen sharply over the past six months, leading to significant revenue shortfalls in many energy exporting nations, while consumers in many importing countries are likely to have to pay less to heat their homes or drive their cars.
Until this summer, the global oil price had been relatively stable for almost four years, at about $110 (£68) a barrel. From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 (£68) a barrel. But since June prices have almost halved. Brent crude oil has fallen below $60 a barrel for the first time since July 2009 and US crude is below $55 a barrel.
However, weaker demand coupled with surging US production has seen the price of the benchmark Brent crude oil price drop by 30% since June to around $83 a barrel. The reasons for this change are twofold - weak demand in many countries due to insipid economic growth, coupled with surging US production.
So just who are some of the winners and losers? Added to this is a determination by the oil cartel Opec that it is not going to prop up prices by cutting production.
Venezuela: Inflation and shortages So who are some of the winners and losers?
Venezuela is one of the world's largest oil exporters, but thanks to economic mismanagement even before the current oil price fall it was already finding it difficult to pay its way. Russia: Propping up the rouble
Last week the country's Foreign Minister, Rafael Ramirez, called for an emergency Opec meeting to allow members to keep prices above $100 a barrel - but some say it really needs prices of $120 a barrel to fund its extensive social programmes. Russia is one of the world's largest oil producers, and its dramatic interest rate hike to 17% in support of its troubled rouble underscores how heavily its economy depends on energy revenues, with oil and gas accounting for 70% of export incomes.
Venezuela is already suffering rampant inflation - currently around 50% - fuelled by government currency controls, which have created a booming black currency market and led to severe shortages in the shops. Russia loses about $2bn in revenues for every dollar fall in the oil price, and the World Bank has warned that Russia's economy would shrink by at least 0.7% in 2015 if oil prices do not recover.
However, President Nicolas Maduro has insisted the current oil price falls will not harm Venezuela's economy or its social spending plans. Despite this, Russia has confirmed it will not cut production to shore up oil prices.
"The price of oil will hit its floor and it will rise again. Venezuela will continue with its social plans," he said. "Venezuela will move forward." "If we cut, the importer countries will increase their production and this will mean a loss of our niche market," said Energy Minister Alexander Novak.
Russia: 'Strained but balanced' Falling oil prices, coupled with western sanctions over Russia's support for separatists in eastern Ukraine have hit the country hard.
Like Venezuela, Russia depends on its oil revenues for income, with oil and gas accounting for 70% of its revenues. The government has cut its growth forecast for 2015, predicting that the economy will sink into recession.
Russia loses about $2bn in revenues for every dollar fall in the oil price, and falling prices are set to push the duty that the country earns on its oil exports to their lowest level since December 2010, according to a Foreign Ministry adviser cited by Bloomberg. Former finance minister, Alexei Kudrin, said the currency's fall was not just a reaction to lower oil prices and western sanctions, "but also [a show of] distrust to the economic policies of the government".
This week President Putin highlighted the risk of spending cuts, saying Russia "cannot rule out a revision in the budget" because of falling energy prices. Given the pressures facing Moscow now, some economists expect further measures to shore up the currency.
"Our budget is not falling apart at the seams. It is strained but it is balanced and completely realistic," he said. "We think capital controls as a policy measure cannot be off the table now," said Luis Costa, a senior analyst at Citi.
The International Monetary Fund earlier this month reduced its 2015 growth forecast for Russia to 0.5%, down from 1% - and the country's state-owned Sberbank says oil prices need to stay above $104 a barrel if the budget is to be balanced. While President Putin is not using the word "crisis", Prime Minister Dmitry Medvedev has been more forthright on Russia's economic problems.
The rouble has fallen sharply after falls earlier this year. This was initially triggered by the conflict in Ukraine and sanctions, but the currency has been further undermined by falling oil prices. "Frankly, we, strictly speaking, have not fully recovered from the crisis of 2008," he said in a recent interview.
"The future prospects for the rouble will be determined by oil prices," says ING Bank economist Dmitry Polevoy. Because of the twin impact of falling oil prices and sanctions, he said the government had had to cut spending. "We had to abandon a number of programmes and make certain sacrifices."
Russia's interest rate rise may also bring its own problems, as high rates can choke economic growth by making it harder for businesses to borrow and spend.
Venezuela: No subsidy cuts
Venezuela is one of the world's largest oil exporters, but thanks to economic mismanagement it was already finding it difficult to pay its way even before the oil price started falling.
Inflation is running at about 60% and the economy is teetering on the brink of recession. The need for spending cuts is clear, but the government faces difficult choices.
The country already has some of the world's cheapest petrol prices - fuel subsidies cost Caracas about $12.5bn a year - but President Maduro has ruled out subsidy cuts and higher petrol prices.
"I've considered as head of state, that the moment has not arrived," he said. "There's no rush, we're not going to throw more gasoline on the fire that already exists with speculation and induced inflation."
The government's caution is understandable. A petrol price rise in 1989 saw widespread riots that left hundreds dead.
Saudi Arabia: Price versus market shareSaudi Arabia: Price versus market share
Saudi Arabia, the world's largest oil exporter and Opec's most influential member, could support global oil prices by cutting back its own production, but so far there is no sign of this. Saudi Arabia, the world's largest oil exporter and Opec's most influential member, could support global oil prices by cutting back its own production, but there is little sign it wants to do this.
"The market has perceived some signals from Saudi Arabia that they are not intending to cut production to support prices," says Jason Bordoff, of the Center on Global Energy Policy at Columbia University. There could be two reasons - to try to instil some discipline among fellow Opec oil producers, and perhaps to put the US's burgeoning shale oil and gas industry under pressure.
"They are happy to let prices slide a little bit further." Although Saudi Arabia needs oil prices to be around $85 in the longer term, it has deep pockets with a reserve fund of some $700bn - so can withstand lower prices for some time.
There could be two reasons for this: to try to instil some discipline among fellow Opec oil producers, and perhaps to put the US's burgeoning shale oil and gas industry under pressure.
Although Saudi Arabia needs oil prices to be around $85 in the longer term, it has deep pockets with a reserve fund of some $700bn - so could withstand lower prices for some time.
"In terms of production and pricing of oil by Middle East producers, they are beginning to recognise the challenge of US production," says Robin Mills, Manaar Energy's head of consulting."In terms of production and pricing of oil by Middle East producers, they are beginning to recognise the challenge of US production," says Robin Mills, Manaar Energy's head of consulting.
"They have had to price competitively, and they have had to price their oil, sometimes, at considerable discounts to get it into the US market."
If a period of lower prices were to force some higher cost producers to shut down, then Riyadh might hope to pick up market share in the longer run.If a period of lower prices were to force some higher cost producers to shut down, then Riyadh might hope to pick up market share in the longer run.
However, there is also recent history behind Riyadh's unwillingness to cut production. In the 1980s the country did cut production significantly in a bid to boost prices, but it had little effect and it also badly affected the Saudi economy.
Opec: Not all are equalOpec: Not all are equal
Alongside Saudi Arabia, Gulf producers such as the United Arab Emirates and Kuwait have also amassed considerable foreign currency reserves, which means that they could run deficits for several years if necessary.Alongside Saudi Arabia, Gulf producers such as the United Arab Emirates and Kuwait have also amassed considerable foreign currency reserves, which means that they could run deficits for several years if necessary.
Other Opec members such as Iran, Iraq and Nigeria, with greater domestic budgetary demands because of their large population sizes in relation to their oil revenues, have less room for manoeuvre, Other Opec members such as Iran, Iraq and Nigeria, with greater domestic budgetary demands because of their large population sizes in relation to their oil revenues, have less room for manoeuvre.
They have combined foreign currency reserves of less than $200bn, and are already under pressure from increased US competition.They have combined foreign currency reserves of less than $200bn, and are already under pressure from increased US competition.
"Nigeria last month didn't export any oil to the US - which is a remarkable development," says Robin Mills. Nigeria, which is Africa's biggest oil producer, has seen growth in the rest of its economy but despite this it remains heavily oil-dependent. Energy sales account for up to 80% of all government revenue and more than 90% of the country's exports.
The war in Syria and Iraq has also seen ISIS, or Islamic State, capturing wells in both countries and selling their products. However, the International Energy Agency says airstrikes have cut this down from 70,000 barrels a day in August to 20,000 barrels a day now. The war in Syria and Iraq has also seen Isis, or Islamic State, capturing oil wells. It is estimated it is making about $3m a day through black market sales - and undercutting market prices by selling at a significant discount - around $30-60 a barrel.
United States: Fracking boomUnited States: Fracking boom
"The growth of oil production in North America, particularly in the US, has been staggering," says Jason Bordoff. "The growth of oil production in North America, particularly in the US, has been staggering," says Columbia University's Jason Bordoff.
Speaking to BBC World Service's World Business Report, he says that US oil production levels are at their highest in almost 30 years. Speaking to BBC World Service's World Business Report, he said that US oil production levels were at their highest in almost 30 years.
It has been this growth in US energy production, where gas and oil is extracted from shale formations using hydraulic fracturing or fracking, that has been one of the main drivers of lower oil prices.It has been this growth in US energy production, where gas and oil is extracted from shale formations using hydraulic fracturing or fracking, that has been one of the main drivers of lower oil prices.
"Shale has essentially severed the linkage between geopolitical turmoil in the Middle East, and oil price and equities," says Seth Kleinman, head of energy strategy at Citi."Shale has essentially severed the linkage between geopolitical turmoil in the Middle East, and oil price and equities," says Seth Kleinman, head of energy strategy at Citi.
What's more, the majority of US shale oil is far cheaper to produce than a lot of conventional crude. So in any long term price war, US producers would be likely to win. Even though many US shale oil producers have far higher costs than conventional rivals, many need to carry on pumping to generate at least some revenue stream to pay off debts and other costs.
"Some 98% of crude oil and condensates from the United States have a break-even price of below $80, and 82% had a break-even price of $60 or lower," Maria van der Hoeven, executive director of the International Energy Agency, told Reuters.
Europe and Asia: Mixed blessingsEurope and Asia: Mixed blessings
With Europe's flagging economies characterised by low inflation and weak growth - and the possibility of Europe's economy entering its third recession in six years - any benefits of lower prices would be welcomed by beleaguered governments. With Europe's flagging economies characterised by low inflation and weak growth, any benefits of lower prices would be welcomed by beleaguered governments.
A 10% fall in oil prices should lead to a 0.1% increase in economic output, say some. However, investors have been selling shares in energy firms recently, which has helped to drag stock markets lower. For now though, lower crude oil and fuel prices should be a boon for consumers. A 10% fall in oil prices should lead to a 0.1% increase in economic output, say some. In general consumers benefit through lower energy prices, but eventually low oil prices do erode the conditions that brought them about.
China, which is set to become the largest net importer of oil, should gain from falling prices. However, lower oil prices won't fully offset the far wider effects of a slowing economy.China, which is set to become the largest net importer of oil, should gain from falling prices. However, lower oil prices won't fully offset the far wider effects of a slowing economy.
Japan imports nearly all of the oil it uses. But lower prices are a mixed blessing because high energy prices had helped to push inflation higher, which has been a key part of Japanese Prime Minister Shinzo Abe's growth strategy to combat deflation.Japan imports nearly all of the oil it uses. But lower prices are a mixed blessing because high energy prices had helped to push inflation higher, which has been a key part of Japanese Prime Minister Shinzo Abe's growth strategy to combat deflation.
India imports 75% of its oil, and analysts say falling oil prices will ease its current account deficit. At the same time, the cost of India's fuel subsidies could fall $2.5bn this year - but only if oil prices stay low. India imports 75% of its oil, and analysts say falling oil prices will ease its current account deficit. At the same time, the cost of India's fuel subsidies could fall by $2.5bn this year - but only if oil prices stay low.