Credit Crunch To Catapult Oil Prices
Monday March 30, 2009
Current cost cutting is rampant on the global business scene, but eventually the current financial crisis will abate, and when it does, so will the low oil prices. The risk is that supply and demand will not run alongside each other, and this could result in an oil price spike that sends the cost of oil per barrel soaring.
Recent reports have shown that oil companies, like other businesses, are scaling back operations on key fronts that require high oil prices to survive. For example, high cost sand oil projects and deep-sea drilling in turbulent environments.
This means vital oil production potentially lags behind stock markets recovering, and when demand does return, we could see a critical undersupply that catapults the cost of oil sky high. Obviously, this has many implications for businesses and stock trading, both directly and indirectly.
During 2008, an oil price slide saw oil prices drop from $147 a barrel to around $50 per barrel (currently trading at time of writing). This has cut the price of oil by a third, and such an extreme dip is bound to have global implications.
In the modern economic climates, oil is a defining factor for many international markets, and the Australian stock market is no exception. Even potential clean energy projects that could one day reduce the dependence on oil are reportedly feeling the impacts of the credit crunch.
There is a possibility that stock market predictions will not be realised, and in the event that markets recover more slowly than expected, we could see the opposite problem. If countries are building up a surplus of oil, prices will remain low and continue to effect the oil industry's capacity to put capital into finding new oil reserves.
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