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Falling Oil Prices and their Long-term and Short-term Impact on the Ordinary Investor write a report at...

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General Management

Falling Oil Prices and their Long-term and Short-term Impact onthe Ordinary Investor

write a report at least 2000-2500 words.

Answer & Explanation Solved by verified expert
3.6 Ratings (502 Votes)
Effects of falling Oil Prices its Longterm and Shortterm Impact on the Ordinary Investor Effect of falling oil prices A fall in oil prices should cause a reduction in transport and fuel costs for firms Consumers who will also benefit from the lower prices of transport and fuel The lower oil prices will effectively increase their disposable income and enable them to spend more on other goods Because oil is the most traded commodity and has a significant bearing on global transport costs it should lead to inflation and can lead to higher rates of economic growth However sometimes oil prices crash because there are fears of an economic recession In this case falling oil prices are not sufficient to increase economic growth because other factors keep growth low Also if oil prices fall sufficiently it can cause some oil firms to go out of business and this causes a rise in bad debts The crash in oil prices in 2020 is indicative of the economic recession and prices have fallen so far that many oil firms will be forced out of business causing job losses and falling investment Also falling oil prices will have differing effects depending on the country Oil importing countries eg Germany Japan India will generally benefit from oil lower prices but developing economies who rely on oil exports eg Russia Venezuela could see a significant fall in export revenue Usually a fall in oil prices would be greeted by consumers and firms due to the lower prices and costs However this fall is due to expectations of a sharp drop in travel and economic recession from the coronavirus Therefore there is little expectation that the lower oil prices will have any positive economic effect If people cut back on travel cheaper petrol doesnt make much difference If people see a fall in income because they are out of work cheaper oil prices are only a small compensation Companies that benefit from low oil prices Peer Companies Oil marketing companies such as IOCL BPCL and HPCL are likely to benefit from low oil price given the reduction in refinery fuel loss and potentially higher auto fuel marketing margins Impact of lower oil prices on oil consumers Lower oil prices help to reduce the cost of living In particular if a household owns a car or uses other forms of transport reliant on oil To a lesser extent all goods should become cheaper due to lower transport costs This fall in the cost of living is especially important if real wage growth is low which has been the case in recent years A fall in oil prices is effectively like a free tax cut In theory the fall in oil prices could lead to higher spending on other goods and services and add to real GDP Oil importers will benefit from a falling oil price because the value of their oil imports will drop This will reduce the    See Answer
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