Lower oil prices provide opportunities
This collapse in oil prices should be good news for European economies such as ours – but we are hamstrung by carbon-cutting tax policies
It was Vladimir Putin's birthday yesterday, but the celebrations would have been somewhat dampened had the Russian leader glanced at the price of one of his country's major exports. In recent weeks, the oil price has been tumbling, depressed by slower economic activity in China, the strength of the dollar, and a glut of shale oil from America and crude from the Middle East. Since reaching $115 a barrel in June, the price of Brent crude has dropped by almost 20 per cent. At the end of last week, it was trading at $91.48 a barrel – the lowest level since 2012. Even the wars and tensions in the Middle East have failed to push up prices as expected, in the face of booming shale output and a consequent fall in US imports.
The geopolitical impact of this development has already been considerable. The economies of some exporters are almost entirely dependent on high prices: some experts have calculated that Russia's budget tips into deficit at anything under $120 a barrel – and that was before international sanctions were imposed in the wake of Moscow's actions in Ukraine. In July, Nigeria did not sell a single barrel to America, despite having until recently been one of its top suppliers. Yet the US, too, is threatened by falling prices, since shale producers will struggle to turn a profit if prices fall much further. All eyes are now on Opec to see whether it will reduce supply at its next meeting in November – but the cartel is not the force it was, and may not be in a position to stop the decline.
This collapse in oil prices should be good news for European economies such as ours – not least at the petrol pumps. But we are hamstrung by carbon-cutting tax policies that have stopped the lower prices being passed on to consumers and motorists. With economic recovery still in its infancy, we need to make the most of this opportunity.
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