New York City, New York – (StockNewsDesk) – 11/28/2014 — Crude oil prices crashed over 7% after the Organization of the Petroleum Exporting Countries (OPEC) declined to decrease the supply of oil production. The meeting was held after the demand of crude oil declined exponentially over 30% during the past 7 months; from near $110 to closer to $80 levels. While the fall in crude oil prices will benefit emerging economies, like Brazil and India, it will also hurt developed economies, like Russia and the United States. There are major economies in the world whose economy predominantly depends on crude oil prices, including Russia, Nigeria and Venezuela.
The meeting was held in Vienna and lasted for about 6 hours. If the meeting would have been successful, the cut in oil production would have been the first since 2008. Saudi Arabia, which is the largest producer of crude globally, did not support reducing oil production. Experts believe this decision was apparently taken to sustain its market share of oil production in the world. Moreover, the country is facing stiff competition from the U.S. shale boom. Brent Crude, a European benchmark, cracked nearly 7% and was trading at $72 a barrel, while light crude, which trades in the U.S. also plummeted 7% and was trading near $68 a barrel. The Street expected a daily cut of nearly 1.5 million barrels to support the crude oil price levels.
How will the Crude Oil Crash affect economies?
The plunge in the crude oil prices will have different effects on different economies throughout the globe. The OPEC countries, which include Saudi Arabia, United Arab Emirates and Qatar, will hardly see any effect on their economies because these oil countries are sitting on a cash cushion of $2.5 trillion. A fall in crude oil prices will hardly affect them.
Emerging economies, like India, will be the largest beneficiary of lower oil prices. India is one of the top consumers of crude oil in the world. It imports nearly two-thirds of its oil demand from Arabian countries. Nifty, India’s major market index, reflected investors’ sentiment as it rose over 100 points in the first half of the trading session.
The fall in crude oil prices poses a major threat to the business of the U.S. Shale business. U.S. shale business has increased multi-fold to 9.077 million barrels a day, the highest level since 1983. The following month might witness its highest levels since 1972 at 9.4 million. The U.S. shale business entirely depends on rising crude oil prices. The crude oil prices must stay near $80 a barrel for the U.S. shale business to break-even and make a profit. If the crude oil prices are successful in sustaining this low level, the U.S. shale business could crash in no time.
Recession looms over Russia as crude oil prices fell over 7%. The country needs the international crude oil prices to stay over $90 a barrel for the economy to expand. Depreciation of the Russian rouble added weight to the fact that Russia could be heading for a recession. The Urals price, a barometer for measuring crude oil in Russia, is trading at $80 a barrel. Experts believe that if crude oil prices remain at this level, Russia could face recession. Oil and gas taxes are responsible for more than 50% of the country’s income. Moreover, the country is already facing tough sanctions from the west. All these factors point towards a slowdown in the country’s economy.