What impact does low global oil prices have on our economy?
(Source: "Energy Review" 2020-03-13)
March 6, Russia andOPEC(Organization of Petroleum Exporting Countries) The leading country, Saudi Arabia, was unable to reach an agreement to further reduce production by 1.5 million barrels per day, leading to the breakdown of negotiations. Subsequently, Saudi Arabia went all out to increase production.
According to the latest news, Saudi Aramco has received instructions from the Saudi Ministry of Energy to increase its maximum continuous crude oil production capacity from 12 million barrels per day to 13 million barrels per day; in terms of price, Saudi Arabia has significantly reduced prices for customers in Europe, Asia, and the Americas in order to seize the largest crude oil market share in the shortest time.
Saudi Arabia’s move has made the international crude oil market, which is already oversupplied, even worse. Not surprisingly, global oil prices suffered an "epic" plunge on March 9. After the opening of the Asian trading session on Monday, Brent crude oil futures opened sharply lower, and oil prices plummeted by 30%.
There has always been a strong "positive correlation" between oil and gas consumption and economic trends. A decline in economic aggregate or a slowdown in growth will definitely inhibit the growth of oil and gas consumption. Therefore, Saudi Arabia's operation also caused "nuclear bomb-level" negative effects on global financial markets. When U.S. stocks opened on March 9, the three major stock indexes suffered heavy losses. The Dow Jones Industrial Average quickly fell by more than 1,800 points at the beginning of the session, and the decline expanded to nearly 7%. Then it triggered the first-level circuit breaker mechanism and suspended trading for 15 minutes. This was the first circuit breaker for U.S. stocks since the 2008 financial crisis.
What impact will the low international oil prices have on our country, which relies heavily on crude oil imports? Dong Xiucheng, director of the Belt and Road Energy w88 and Development Research Center at the w88 casino, believes that the sharp drop in oil prices will inevitably have a major impact on my country's economic development, with both advantages and disadvantages.
Dong Xiucheng pointed out that low oil prices are first of all conducive to stabilizing my country's international balance of payments. Since my country is a major oil importer, low oil prices can reduce the country's foreign exchange expenditures and maintain the stability of foreign exchange reserves. In 2019, my country's total import volume was US$2.07 trillion, and oil import volume was US$240.4 billion, accounting for 11.6% of total imports. Oil imports were 3.7 billion barrels, with an average import price of US$64.97 per barrel. Dong Xiucheng pointed out that if oil imports in 2020 remain the same as in 2019 and oil prices stabilize at the current level ($35/barrel), $110 billion will be saved. Secondly, it is conducive to reducing economic and social operating costs. Low oil prices can directly reduce the costs of refining, chemicals, transportation, logistics and other industries, and indirectly reduce the costs of automobiles, textiles, agriculture, tourism and other related industries, thereby affecting the production price index (PPI) and consumer price index (CPI）。
"However, on the other hand, low oil prices may affect energy transformation and ecological environment governance." Dong Xiucheng told the "Energy Review" reporter, "Falling oil prices will inevitably lead to increased competition between oil and alternative energy, inhibit the development of the clean energy industry, affect the growth momentum of non-fossil energy, and is not conducive to energy structure adjustment and environmental and ecological governance."
From the perspective of traditional energy, the price of crude oil has returned to a low valuation compared to coal, and has recovered from a high valuation to a reasonable level compared to natural gas. According to the calorific value conversion, crude oil of 30 US dollars/ton corresponds to thermal coal of 380 yuan/ton. The current domestic thermal coal price is higher than 500 yuan/ton. Crude oil has shown advantages in price compared with coal. From the perspective of renewable energy, the cost is generally high, and low oil prices will inhibit its development. From the perspective of alternative energy, the cost advantage of biodiesel and methanol gasoline will no longer exist, and the drop in oil prices will have a significant crowding-out effect.
In addition, low oil prices may also affect the stable development of my country's oil and gas industry and related industries. The average cost of oil in the domestic oil and gas industry is roughly US$50-55 per barrel, and the cost of individual oil fields is even higher. If the current low oil prices continue for a long time, the domestic oil and gas industry will suffer losses, oilfield companies will enter the stage of comprehensive huge losses, and the entire industry will once again enter the "cold winter." Correspondingly, a large number of petroleum engineering and technical service companies will face the harsh situation of having no rice to cook, with insufficient investment in scientific and technological research and development, and oil and gas-related higher education and vocational education will face unprecedented employment difficulties.
Dong Xiucheng said that how global oil prices will change in the future depends on the development trend of the epidemic, global economic trends, geopolitics, and whether the Vienna Union mechanism can re-function.
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