Oil Dropping Prices Essay

670 words - 3 pages

1. What has caused this major drop in oil prices?
The reasons why Oil prices are falling down are twofold, they are due to the simple economics of demand and supply.
First of all, we can observe a weak demand in many countries due to insipid economic growth, coupled with surging production. Developing countries and the economies of Europe are becoming less oil dependent thanks to the technology, cars are becoming more energy-efficient. So the demand for fuel is logically decreasing. Added to this is the fact, on the supply side, the oil cartel OPEC is determined not to cut production as a way to prop up prices. Moreover, countries like Saudi Arabia, Nigeria and Algeria are now competing to the Asian markets so producers had to drop prices and USA has gave up the imports as its domestic production has doubled these years. Finally lot of competitors are rising such as Canadian, Iraqi or even Russia and they manage to increase their oil production and exports every year.
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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.
But it's a different story for nations reliant on oil sales. Russia's economy is facing a potential meltdown: “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. Venezuela is facing unrest and may default on its DEBT. Even better-prepared countries like Saudi Arabia could face heavy pressure if oil prices stay low. In USA, some smaller oil companies, heavily in debt, may go out of business.

3. What business impact would these lower prices have on you, a multinational enterprise international business manager for a major consumer products company? For example, if you worked for a major consumer products company like Unilever, Mars or Colgate Palmolive.
Conversely, the fall of crude represents a breath of fresh air for corporate consumers of petroleum or petroleum products. Starting with fuel - hungry companies despite taxes the fall is largely depreciated. "Air transport, road transport, logistics companies will take advantage," notes Emmanuel Fages, consultant at Roland Berger. "As well as chemists backed oil channels". Yesterday Dow Chemical announced notable results, related to the improvement of margins in petrochemicals and plastics manufacturing. Many also rely on to consumer purchasing power to boost their sales. In fact, thanks to these lower prices, companies may reduce costs increase profits. In the case of companies share profits, they will increase the salaries. In a study published mid-January, Moody's cited distribution, mass consumption products, or restaurants, among the major beneficiaries of the fall of the crude. The COE-Rexecode Institute estimated at 17 billion euros NET economy that the France would realize on their oil bills this year compared with 2014 if oil remained at the current level. Which would represent a gain of 0.8 point in terms of GDP growth.
However, depending on the case, some will be forced to pass on the savings on their selling prices and cannot improve their margins.

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