Monday, October 27, 2014

Chart of the Day -- Winners and Losers from Low Oil Prices

The price of Brent crude fell over 25% from $115 a barrel in mid-July to under $85 in mid-October. Who wins and who loses from lower oil prices? This chart provides some answers ...


  • A 10% change in the oil price is associated with around a 0.2% change in global GDP. A price fall normally boosts GDP by shifting resources from producers to consumers.
  • Saudi Arabia can survive low prices because, when oil was $100 a barrel, it saved more of the windfall than it spent. The biggest losers are countries that didn't. Notable among these are three vitriolic critics of America: Venezuela, Iran and Russia
  • However,Russia now has reserves of $454 billion to cushion against oil-price fluctuations.
  • China is the world's second-largest net importer of oil. Every $1 drop in the oil price saves it an annual $2.1 billion. The recent fall, if sustained, lowers its import bill by $60 billion, or 3%. Meanwhile, the cost of goods its exports should remain fairly stable. China is a big winner.
  • Energy imports into the European Union cost $500 billion in 2013, of which 75% was oil. So if oil prices stay at $85, the overall import bill could fall to under $400 billion a year.
  • America  is simultaneously the world's largest consumer, importer and producer of oil. Analysts at Goldman Sachs reckon that cheaper oil and lower interest rates should add about 0.1 percentage points to U.S. growth in 2015.
  • A $20 drop in the world oil price reduces American producers' profits by 20%. Only four-fifths of shale reserves are economic to extract using current technology with Brent around $85. However, that's starting from scratch -- shale oil wells that are already producing will likely keep pumping even if the price falls.


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