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Lighthouse - January, 2017.

Lingering of Oil Economies – A Matter of Concern

oil-economyEconomics is a social science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.

Oil Economies, a cliché term to elaborately define the strong existence of the conventional oil producing nations. As oil is an exhaustible resource, which will eventually run out, the economy that depends on oil can also eventually run out. The oil market has undergone considerable amount of change during the past few decades. The etiquette that protects the oil market is no more valid. The oil economies require an updated set of principles reflecting the New Economics of Oil.

The current soar in oil prices of an approximate 40% is not a matter of excitement according to experts. No one knows the future of oil prices, which has been showcasing fluctuations in the recent past. The so called oil economies are preparing to lower their oil production and thus bring the prices to hover around $50 per barrel. To a certain extent this strategy might show a positive vibe. However, can we consider this as an everlasting phenomenon?

The recent survey done by the Harvard Business Review shows that the present situation of lower oil price environment is not an “oil bust” that will be followed by an “oil boom” in the near future. Instead, it cautions that the aftereffect of this phenomenon will definitely impact all nations including non-oil producers.

In the recent past, economic scenario assumed that the oil producers are strong enough to take care of the oil and gas supply worldwide. However, as an unexpected jolt to the conventional energy giants, the American shale oil and gas producers’ master crafted a new business strategy. When the traditional oil companies takes at least five to ten years to explore, invest, and produce new oil fields, the US based shale oil companies require just five to six months overall to execute the same process. The capital investment for these American shale oil companies is really low when compared to their conventional rivals. This has resulted in a five times jump of total oil production in the United States.

The US has also lifted a four decade old ban on exporting its oil to the worldwide demands forcing the traditional oil producers to lower their production.

It is high time that the oil nations should stop relying on the conventional oil strategy as their economic backbone. GCC nations who have a strong oil based economy have amassed considerable wealth during the past decades could come under stress in the coming decades if they continue to follow their status quo. Instead, they have to find new methods and technology to invest in other forms of renewable energy and shale gas production as well.

Gopakumar KP
Sales Executive – CSS Dubai
gopakumar@cssdubai.com

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