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Low Oil Prices Pull Global Economy Into ‘Uncharted Territory’

There’s “no good way out” of the drop in oil prices, says actuary Gail Tverberg, with producers desperate for revenues, oil companies cutting back investment, high-consuming countries like China trying to reduce debt, and fossil exporters like Saudi Arabia dependent on steady oil income to maintain food subsidies, job creation, and other public benefits.

“In the West, we have been led to believe that OPEC in general and Saudi Arabia in particular exert great control over oil prices,” Tverberg writes. “But where we are now, the situation has changed greatly. The population of the Middle Eastern oil producers has risen. So has their own use of the oil they extract. Their budgets have risen, and the countries need increasing revenue from oil taxes to meet their budgets. Some countries, including Venezuela, Nigeria, and Iran, require oil prices well over $100 per barrel to support their budgets.”

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The net result is that “we are in uncharted territory,” at risk of deflation leading to the possibility of wage cuts and loan defaults in several countries. “If there is a cut back in debt and cutback in production of commodities, many goods we have come to expect in the marketplace will disappear, as will many jobs,” she says. “This would be the situation of the 1930s all over again.”