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Drop in Oil Prices Results in Slow Global Economic Growth

Only a modest growth of 0.5% was seen in the global GDP, despite the collapse of oil prices in recent years. In June 2014 crude was still priced at over $115 a barrel, it has since crashed to $30 at the start of 2016.

The modest growth is said to continue throughout 2016, which is good news. However, lowering prices and an oversupply of crude will put pressure on the main countries that export and produce oil around the world, some of which are England, Scotland, Wales and Ireland.

The dropping price of crude largely affects the UK and Ireland, which is the largest producer of oil and gas in Europe. In the past 10 years, the nation was able to cover its account deficit through incoming investment. However, since 2009, its shortage in investment has outpaced the insufficiency of its goods and services.

According to FXCM, “lowering prices and lagging oil production could induce a weakening of the pound.”

However, the UK remains a bullish importer of crude within Europe. Local analysts have expressed optimism that they may potentially gain benefit from the lowering oil prices by 2020, as it will spur greater investment in other sectors, such as manufacturing and transportations.

Due to the falling revenues, fossil fuel exporters and producers are forced to cut back expenditures and delay other projects. Most international oil companies are now forced to scale back their spending, make redundancies, delay some of their projects, as well as sell assets. They will be keeping activities that only offer the best returns on capital.

Analysts say, if the price stabilise in the second half of 2016, then we can expect companies to look at replacing reserves inorganically through acquisitions.

Oil price is forecasted to reach as low as $20 per barrel, but oil company OPEC said they will not slow down supply.

“We could see a short lived phase of all-out panic, which could trigger a freefall situation,” said commodity strategist Ole Hansen of Saxo Bank. “[It is still] difficult to rule out anything.”

Photo Credit: doctorious via Compfight cc

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John Hampton

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