What happens when oil prices fall

Oil has seen the biggest drop since 2009 as it has reached $50/barrel giving dollar a big boost. And this fall in oil prices which is due to the weak demand from European countries and Asia. While consumers always give a thumbs-up everytime there is a fall in oil price but from the global economy point of view the story is not the same especially the OPEC and Russia which are majorly oil dependent on their country’s growth.

So here are the effects of falling oil prices:

• Oil Exploring Countries: Biggest oil exporting countries which rely heavily on generating revenue by selling oil face budget problem as they would see a dip in their revenue. For e.g. government of countries like Russia, Iran and others are on the verge of facing monetary constraints as the money earned from oil selling is used to fuel the countries development which includes infrastructure projects, defence etc. Major countries falling under this category apart from Russia are Nigeria, Saudi Arabia, Venezuela and others. Whereas US won’t get affected as it does not rely majorly on this earning despite of being a biggest oil producer in the world.
• Stock Market: As dollar is strengthening due to strong US recovery, foreign investors will pull more money out of stock markets and invest in US and that would lead to the downturn of stock market. This will affect stock market of countries especially Asian countries like India and China.
• Employment: Job cuts would rise especially in oil exploration industry. As global oil demand is decreasing oil prices are falling down. These reduced oil prices directly results in slowdown in drilling or rigging job in oil production industry leading to increased lay-offs.
• Consumer Spending: Another effect of fall in oil price is on consumer spending. People tend to buy more as the cost of buying goods reduces because of lowering of transportation cost accrued by the companies. This directly increases the family’s savings which can be used to invest in lucrative schemes to build their wealth and securing their financial future.
• Economy: As consumers spend more on buying things the retailers make more money and also their overall cost would plunge as they need to pay less to import. And this in turn gives boost to the GDP of the country i.e. the economy of the country improves.
• Utility bills: Oil importing countries like India, China will see a drastic saving in their energy bills.
• Political Instability: There is certainly a rise in international political crisis as revenues of oil producing countries are seeing a direct impact on their revenues as they primarily rely on oil export. Adding more to the pain is Russia announcing that it would enter recession in 2015 which is a big concern in this year.