Money and oil prices in business
Oil prices are they a political issue or just a financial one?
Oil prices last current months have been falling trying to find a bottom. With that said and geopolitical tensions between Iran and Saudi Arabia, as oil is one of the most active traded commodities should its price be determined by political decisions or just by financial terms?
Oil prices are mostly very volatile like gold. One or more comments or decisions, thoughts by oil producers countries can spark a rally or a free fall. What is both ethical and economically correct? An intervention to maybe artificially inflate price or to leave the global economy decide about what the desired price for oil should be?
As an Economist I strongly believe that any intervention in the financial markets from any source outside the markets such as politics is bad and undesired. There should be no restrictions at all at which levels oil prices should go either up or down. It is simply the very basic and elementary law of economics supply and demand determines the price of any good or service.
What is strange though is the fact that now current prices or oil is around 30 dollars per barrel and some time ago OPEC had mentioned that they are satisfied with a price around 40-60 dollar per barrel. With such low prices oil producers countries lose a lot of money no doubt about that. So should they interfere and cut supply to inflate the price?
Not by all means. A cheap price is a good one as it has embedded the incentive for more consumption of a good. It is simple, makes something attractive and in most cases it works. There is also another strange fact that is made by financial analysts and economists when the majority of opinions tend to support one direction up or down. Then a reversal could happen as it happened a few years ago when oil prices were at about 150 USD per barrel and most analysts believed 200 dollars per barrel was a sure bet.
Well nothing is certain in finance,investments or even real life.
This year has started with a lot of financial turbulence and volatility and safe havens like the Japanese Yen or Gold have seen massive capital inflows.Trends tend to change without a warning though and this is both exciting and challenging for the rest of the time not just for oil.
While consumers are happy with low prices and any business that is engaged in manufacturing,constructing,moving goods from one point to another like maritime companies should also be happy and satisfied with a sustainable low level of oil prices the magic word is just that.Is it really sustainable?
Experience and life has shown that hardly something is forever sustainable.Only time will tell.