You would not think that oil prices have fallen so drastically in 2014, if you filled up your car with petrol in the United Kingdom today. You always seem to pay the same amount notwithstanding that oil prices are now the lowest that they have been for many years. The price of crude oil has halved since the summer.
Many nations whose economies are based on supplying oil (and natural gas) have found it hard to manage. Venezuela has entered recession with its economy contracting 2.3% in the past three months and by more than 10% in the past twelve months. Its inflation levels are very high – around 63%, so folk there are having a hard time.
Its President, Nicolas Maduro believes the Venezuelan economy’s plunge is a result of global political instability and falling oil prices. Normally global instability pushes up the price of oil, but Mr Maduro believes that the USA has been flooding the market with oil as part of an economic war that USA is waging against Russia and Venezuela. Oil, selling now at $48 a barrel in Venezuela, is a commodity whose prices have always been politically manipulated, traditionally by keeping the price high to damage economies. Now the prices is kept low to damage economies. For Mr Maduro, oil is a weapon of war.
Having used oil as a weapon, the oil producers are now crying “foul” when others use it as a weapon of war.
Most people would expect that low oil and other energy prices bring economic booms to nations that manufacture or trade, like the United Kingdom and Germany, but there is no sign of any boom in these nations, so either the low oil price has not yet had a chance to feed through to the economies or traditional thinking is fundamentally flawed in believing that low energy prices are a key factor in economic prosperity.
I have found that those who link cheap energy to prosperity and thus use that as a reason to shun renewable energy were wrong. We shall see if I am right about this in 2015, when there will be, as far as anyone can judge the lowest oil prices in real terms for many years. I rather suspect that energy prices will remain stubbornly high, because energy suppliers will find reasons (or invent them) to justify high prices and increased profits.
Low oil prices mean the closure of oil wells, particularly small ones, because the oil cannot be sold for more than the cost of its production, and expensive forms of oil, such as oil from the Canadian tar sands, will be less ruthlessly exploited. What I cannot see happening is that low oil prices will create prosperity in developed nations, although they may create marginally less economic gloom.