Prices of oil is falling and once it reached one of its lowest in few years. Prices are still falling and expected to go further down beyond $40. Other side the market is also plummeting. Europe is facing its worse problems, China's growth is falling, Russia fuhhhh.... no need to explain. and interesting fact is the country whose economy is dependent on oil is not worried. What is it going on with oil? Is globalization playing a part in all this? The answer to this is YES, globalization is playing a very important role in these events.
Usually, oil companies make a future deal and the derivative market also plays a very important role in deciding prices of oil. This market is based on the demand and supply. But the twist here is, oil trader's went into a forward contract with a view that the oil prices will remain range bound for some time, the situation arise out of geopolitical situation, the demand for oil has reduced. And a new alternative shell gas had been discovered (this was discovered few years back, but the announcements made the difference) and it was suggested that this will reduce the need for crude oil. The prices start plummeting.
There is another angle to this fall in crude prices is that its demand increased. US is the largest consumer of oil in the world. In fact the crude consumption in the US is double the crude oil consumption of China and India both together. Shell gas was discovered mainly in the US, still the US is accumulating oil more than the earlier. According to the market data provider company Genscape, the US is producing and importing 1 million more barrel of oil everyday and there is a possibility that the storage tanks at Cushing, Oklahoma could be full by mid April, further reducing the demand of oil and bringing down the oil prices.
Now there is a question how all this affects the Global economy. Reduction of oil prices, pinches the oil companies. After certain level, when companies have made purchases at one level, and prices fall further, MTM losses increases. Further, at low prices, refining cost could be more than the oil prices. Once prices fall further, even the transportation cost could not be cover. All these will lead to losses for oil companies and will also impact their other investments in other countries. Market crashes and spiraling the problem.
It is a reality that the Globalization has helped the world to prosper. but it is also true that the problem in one global commodity can impact the world economy badly. Globalization has its advantages as well as its problems. Crude has Screwed many economies, countries and companies.
Usually, oil companies make a future deal and the derivative market also plays a very important role in deciding prices of oil. This market is based on the demand and supply. But the twist here is, oil trader's went into a forward contract with a view that the oil prices will remain range bound for some time, the situation arise out of geopolitical situation, the demand for oil has reduced. And a new alternative shell gas had been discovered (this was discovered few years back, but the announcements made the difference) and it was suggested that this will reduce the need for crude oil. The prices start plummeting.
There is another angle to this fall in crude prices is that its demand increased. US is the largest consumer of oil in the world. In fact the crude consumption in the US is double the crude oil consumption of China and India both together. Shell gas was discovered mainly in the US, still the US is accumulating oil more than the earlier. According to the market data provider company Genscape, the US is producing and importing 1 million more barrel of oil everyday and there is a possibility that the storage tanks at Cushing, Oklahoma could be full by mid April, further reducing the demand of oil and bringing down the oil prices.
Now there is a question how all this affects the Global economy. Reduction of oil prices, pinches the oil companies. After certain level, when companies have made purchases at one level, and prices fall further, MTM losses increases. Further, at low prices, refining cost could be more than the oil prices. Once prices fall further, even the transportation cost could not be cover. All these will lead to losses for oil companies and will also impact their other investments in other countries. Market crashes and spiraling the problem.
It is a reality that the Globalization has helped the world to prosper. but it is also true that the problem in one global commodity can impact the world economy badly. Globalization has its advantages as well as its problems. Crude has Screwed many economies, countries and companies.
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