Oil in the news

Going through the news this morning I see a lot of energy related talk. The FT report of OPEC looking to set up emergency meetings if oil continues to drop, the Iraq government running out of money and delaying salaries in the face of low oil and a fight with ISIS, protests in Venezuela, Norway looking to rebalance their economy, and so on. These are all ailments that have no doubt been exacerbated by the decline in oil over the past 8 months but the fact remains that the price of oil cannot be dictated by side effects alone, especially the supply side. Without cutting by Saudi Arabia any OPEC meeting will not produce any meaningful results that would affect the price of oil. Economic malaise as result of budget deficits usually propped up by oil revenues cannot be solved by cutting production in a meaningful manner. Without a concerted effort globally to limit supply of oil the price will not be adjustable by any one country (perhaps with the exception of Saudi Arabia but we know where they stand).

Because of this lack of power over oil prices, many countries will have to enact other measure that they can control to try to mitigate this change in price. Norway, looking to diversify its economy in the face of lower oil would have to look at non-oil companies lack of competitiveness in wages, hours worked, and price of goods. The government can help by weakening the currency or enacting reforms around trade and labor. Iraq may have to tap foreign governments for help in dealing with ISIS on a lower budget from oil revenue. Political turmoil in Venezuela was always a threat, but usually quelled by spending with oil revenue to keep the citizens happy.

When looking at oil prices, there is more to the story than the price itself, but also the side effects and most importantly companies and governments steps the address the issue. As more euro-skeptic parties and protests come to the center of these countries dependent on oil revenue more drastic reforms will be taken to rebalance the economy, with varying results.