Oil at $10 would be a massive disruption. The oil decline to $50 has already sent the world spinning. Many of the world’s most crony economies are in very real trouble thanks to the decline. Venezuela, Iran, Russia, they’re all hurting badly.
And it is the crony regime in Saudi Arabia which has precipitated this event. They’ve kept the spigots running during the decline and even while China slows. Whether this is to punish the Persians or the American frackers is unclear.
What is clear however is that the recent oil decline has shaken the already fragile world economy and that any further rapid declines in the price of oil will likely only increase global instability.*
(From Bloomberg View)
At about $50 a barrel, crude oil prices are down by more than half from their June 2014 peak of $107. They may fall more, perhaps even as low as $10 to $20. Here’s why.
U.S. economic growth has averaged 2.3 percent a year since the recovery started in mid-2009. That’s about half the rate you might expect in a rebound from the deepest recession since the 1930s. Meanwhile, growth in China is slowing, is minimal in the euro zone and is negative in Japan. Throw in the large increase in U.S. vehicle gas mileage and other conservation measures and it’s clear why global oil demand is weak and might even decline.
* On the other hand cheap gas sure is nice.