Monday, December 22, 2014

Do We Have To Care About Oil Price Decline?

Oil prices have been coming down sharply since early December. The world media outlets, have focused on this issue. Countless experts let the world know about their view on Bloomberg, CNBC and other major news outlets. But do we have to care about it? I mean, for a regular person on the street, is the fall in price of oil (technically it is the price at which the future contracts are set, and not the physical oil price) be of importance to affect his decisions or not?

This is the question, that I would like to think through on this post.

First, let's start with the basics. What good does oil have for our lives? It is the most widely used energy source. As such, it is important that we have energy and it is good if it doesn't cost much for regular people. So, by looking from this angle we can clearly see that the falling of oil price if actually not so bad. 

Second, oil is the primary export product for many developing countries, Kazakhstan included. So, selling oil for less is bad in terms of revenues the country generates. However, we have to also note, here that, there is an opportunity for exporters to lower the cost of production of oil and other ancillary costs, then theoretically oil exporters have an ability to maintain their margins, or at least lessen the effect of lower revenues.

Third, many people are employed in the oil production, sales and marketing industries. Less revenues, might mean less income for these people. So, we have a social effect of falling of oil prices. 

Fourth, the oil is used as a primary raw material for petrochemical industry (think plastics), which might actually benefit from the fall of raw material costs.This is good, as the retail prices of many products that we use daily might fall too.

In conclusion, we might say that falling of oil prices is both good and bad. There are some areas that might benefit from this, and other areas that might get hurt by this. 

In general however, the falling prices of oil is not controlled by me, you or any one person, so we should treat it as a given condition and try to use it for our benefit as much as possible. It is like a weather. Today it might be sunny outside, tomorrow it might be raining. We never know. Therefore, it is always better to focus on items that we can control and important, rather than focus on items that we don't control and not important.

No comments:

April 2, 2017 Astana, Kazakhstan Frist Quarter (Q1) 2017 Update Report Dear Partner, During Q1, the Green Valley Fund (“GV...