Is the drop in the oil price a “Pump War”?

Posted on October 21, 2014

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Pump War

On 17 October I discussed the falling oil price in the “Focus” column of the newspaper, Svenska Dagbladet (The falling oil price may presage a future recession) and there were some points made in that article that can be compared with those in an article by the well known columnist Thomas L. Friedman in the New York Times of 14 October. In Friedman’s article the falling oil price was described as a “Pump War”. His analysis is that the price is falling because oil is being overproduced relative to what Europe and China need:

“The price drop is the result of economic slowdowns in Europe and China, combined with the United States becoming one of the world’s biggest oil producers — thanks to new technologies enabling the extraction of large amounts of “tight oil” from shale — combined with America starting to make exceptions and allowing some of its newfound oil products to be exported, combined with Saudi Arabia refusing to cut back its production to keep prices higher, but choosing instead to maintain its market share against other OPEC producers. The net result has been to make life difficult for Russia and Iran, at a time when Saudi Arabia and America are confronting both of them in a proxy war in Syria. This is business, but it also has the feel of war by other means: oil.”

In terms of economic consequences it is, foremost, Russia that will be affected negatively. That lower prices will also be deleterious for the fracking industry in the USA was not discussed and Friedman avoided discussing that the extended period of high oil prices in recent years has been a reason for economic difficulties in Europe’s and China’s economies.

It will be interesting to follow developments in the coming months and during that time you can read Thomas Friedman’s article, ”A Pump War”.

(Swedish)
Den 17 oktober diskuterar jag det sjunkande oljepriser på Brännpunkt (The falling oil price may presage a future recession) och det finns några punkter som kan jämföras med vad den välkände kolumnisten Thomas L. Friedman diskuterade den 14 oktober i New York Times. Det sjunkande oljepriset beskrivs som ett ”pumpkrig” (A Pump War). Hans analys är att priset sjunker på grund av att det är en överproduktion av olja jämfört med vad Europa och Kina behöver:

“The price drop is the result of economic slowdowns in Europe and China, combined with the United States becoming one of the world’s biggest oil producers — thanks to new technologies enabling the extraction of large amounts of “tight oil” from shale — combined with America starting to make exceptions and allowing some of its newfound oil products to be exported, combined with Saudi Arabia refusing to cut back its production to keep prices higher, but choosing instead to maintain its market share against other OPEC producers. The net result has been to make life difficult for Russia and Iran, at a time when Saudi Arabia and America are confronting both of them in a proxy war in Syria. This is business, but it also has the feel of war by other means: oil.”

Vad det gäller de ekonomiska konsekvenserna är det främst Ryssland som skall drabbas. Att lägre priser på olja också kommer att drabba frackingindustrin i USA diskuteras inte och han undviker att diskutera att det höga oljepriset under lång tid är en orsak till den ekonomiska nedgången i Europas och Kinas ekonomier.

Det skall bli intressant att följa utvecklingen de närmaste månaderna och under tiden kan ni läsa Thomas Friedmans artikel ”A Pump War”.

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