(Newswire.net — January 13, 2015) — Some analysts agree that an oil price war is potentially dangerous, however, not as alarming as some in the media have warned. The situation is not good for many US oil producers who can not compete low oil prices from OPEC countries, but they will adopt, according to analysts.
Even pore countries like Venezuela are likely to keep producing oil in hopes of revenues to help in paying its debt “as long as prices don’t fall to the low $30s for an extended period of time,” says Francisco Rodriguez, who follows Andean economies for Bank of America Merrill Lynch.
Rodriguez told Bloomberg, if Venezuela defaults, it would be “because of politics, not necessity.”
President Nicolás Maduro knows if Venezuela defaults, creditors will try to seize refineries outside the country that are valued at $20 billion, which stands as a the last, but still viable solution.
Russia has even less reason to default because “sits on close to $400 billion in currency reserves,” says George Abed, director for Africa and the Middle East at the Institute of International Finance.
While marketers expect to see impact of the low Brent oil price on the stocks of banks, vulnerable to a wave of defaults, it just hasn’t happened. Stock prices of the both Standard & Poor’s index of diversified bank, JPMorgan Chase and Citigroup including, are up more than the overall S&P 500 over the past half year.
On the other hand, “The negative impact on investment starts to ratchet up” if oil stays below $50 a barrel, says Douglas Handler, chief US economist at IHS. Steven Kopits, analyst at Princeton Energy Advisors, said the price drop might knock so many producers out of the market that there will be a “steep price rebound.”
According to Bloomberg, however, oil drops below $45 US Stockpiles may speed collapse and the speculation that US crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years.
A Bloomberg News survey compared prices of gallons in New York. The results find oil is almost as cheep as tap water.
New York tap water: $0.01
Corn oil: $20.11
Starbucks espresso: $224.00
Human blood: $4,079.83
Gasoline $2.19
Iced tea $0.27
Still, government data shows cheaper oil is still creating more winners than losers stating that far more people live in oil-importing countries than in oil-exporting ones. National statistics shows the benefit of American consumers and businesses that are paying less for gasoline, diesel, jet fuel, and
petrochemicals.
Now, it is not alarming, national data shows. The question remains though, how lower oil prices will affect the society in not so near future.