Oil prices tumble on Saudi move
November 5, 2014, 3:06 pm

Countries like China have reacted positively to the falling cost of a barrel of oil by cutting their gasoline prices [Xinhua]

The move by the world’s largest producer and exporter comes amid fears that the eurozone may not be able to lift itself out of recession in 2015 and therefore demand for oil is uneven at best, dwindling at worst.

There is also concern that the economy in China, the world’s second largest importer of oil and its byproducts, is beginning to slow down.

At the end of Tuesday trading, US crude tipped at just under $76 a barrel before stabilizing at $77.19, the lowest price since October 2011.

Oil prices, depending on markets, have dropped between 25 and 30 per cent since June of this year.

Energy analysts expect Saudi Arabia to continue to produce its quota for the interim. However, it is likely to scale back production if oil prices fall below $70 a barrel.

The drop in prices is a boon to some and a curse to others. China and India, for example, are likely to see their economies grow because of the relatively low cost of fueling their industries. India, for one, will see a drop in its current deficit.

But other countries which rely heavily on high oil prices as a foundation of their economic system – such as Russia, Venezuela and Iran, to name a few – are concerned by the significant decline in demand and pricing.

Venezuela has lobbied to no avail its fellow members in the Organization of the Petrol Exporting Countries (OPEC) to hold an emergency meeting at their Vienna headquarters.

US oil companies are also concerned that they could see a dent in their revenues and profits; however, low gas prices are expected to help boost consumer spending, thereby injecting more growth in the economy.

Source: Agencies