The Oil Threat: Black Gold Plunges the Global Economy into Recession

The entire world has its eyes fixed on the price of oil, one of the most feared financial indicators of the moment. It has reached extremely low values recently, leading specialists to state that, statistically speaking, there is a 70% chance the entire world will enter another period of economic recession. Things are all the more serious as oil production is being heavily encouraged at high levels, despite the fact that supply has alarmingly exceeded demand.

oil priceWhen the price of oil is in freefall, the fate of the entire global economy is threatened. Whether it concerns powerful or emerging states, large or small companies, employees, retirees, or the unemployed, everyone’s financial security is put at risk. This is precisely why, in recent days, the whole world has been watching the evolution of oil prices with fear. And what is happening is not encouraging at all.

„It is not about speculation or forecasts, it is not about pessimism or exaggerations. It is about statistics. History has proven that when the price of oil drops below 35 dollars per barrel, there is a greater than 70% chance that a period of global economic recession will follow. And the price of oil has dropped below 35 dollars per barrel,” explained economic analyst Tudor Ionescu for IMOPEDIA.ro.  

Exchange rates, unemployment, layoffs, or investments are determined based on the price of oil

Budgets and business plans for both companies and countries are established based on the evolution of oil prices. The entire world references the price of oil when discussing exchange rates, unemployment, layoffs, investments, or deficits. And the reality is that things have taken a turn for the worse over the past year.

„In 2015, there was a trend of negative records. First, there was a 50% drop from the 2014 peak. Then, year-end global calculations showed a decrease of nearly 40% compared to the level at the beginning of the year. In the last 18 months, the price of oil has dropped by 70%. Giants in related fields collapsed by these same percentages: production, exploration, service, or transport companies suffered massive losses that are difficult to stabilize,” the economic analyst continues.

Oil-producing or exporting countries are trying to reduce budget dependence on oil prices

The same negative impact was felt directly by countries that export or produce oil. In the case of exporting states, budget deficits have reached alarming levels, and national currencies have plummeted, with Russia being a clear example. Countries like Iran or Saudi Arabia are trying alternative solutions to reduce budgetary dependence on oil exports. All these countries are now adjusting their estimated oil price levels to cope with the challenges ahead, as international pressure mounts for an unjustified increase in oil production.

„Oil production saw a sudden increase at the end of 2013, when the daily production average was three million barrels higher than the average of previous years. Giants in the field were producing even six million barrels more per day. In two years, oil production increased by 5%, supply far exceeded demand, but production continues at the same alert pace,” explains the economic analyst.

Furthermore, the very fact that there is no competitive demand for oil is a signal that an economic recession may follow. Nevertheless, industry experts estimate an increase in the oil surplus by 1.8 million barrels per day. These figures are justified by OPEC – the Organization of the Petroleum Exporting Countries, by the fact that it is enabled by modern oil extraction technology. According to OPEC, this increase was necessary to meet potential demand which, without this advance, would have exceeded supply as early as this year. Moreover, the same organization advocates for the liberalization of production by eliminating daily limits, a fact that could materialize this very year. Such a change could lead to an oil surplus so large that it could reduce the price of oil to its lowest level of all time.