The Causes and Impact of the Recent Oil Price Drop

TheCauses and Impact of the Recent Oil Price Drop

Therecent oil drop has impacted on the economies in the world indifferent ways and to different extents. With several industries suchas the transportation benefiting, it is worth to understand thereasons why the oil prices are dropping. This paper will review andreflect on the story as reported by three of the world’s respectedbusiness news journals Houston Chronicle, the Wall Street Journaland the New York Times.

Accordingto Friedman (1) of the Wall Street Journal, the drop in the oilprices is because of the reduction of the prices of crude oil by theSaudi Arabian oil firms. The oil firms in Saudi Arabia have cut theprices in surprise moves that have led to the global reduction. Thereason for the surprise reduction in price is because of thecompetition in the market. According to Eaton and Mayers (1) of theHouston Chronicle, the Saudi Arabian oil firms have reduced theprices to compete with the American companies in the global oilmarket. At the same time, the New York Times (2) reports that theprices reduce because the Saudi Arabian firms that supply oil to theUnited States reduced the prices of their supplies.

Secondly,the reduction in the price of the commodity is sustained because thesuppliers have maintained the supply despite the price cuts.According to the New York Times (2), the supply of oil is rising andthe demand of full is trailing the expectations. Friedman (1) arguesthat the oil producing companies from OPEC don not want to risk theirglobal revenue by reducing the supply due to the price drop. As itwould be expected, the reduction in the price of a commodity reducesthe quantity supplied. However, oil producing companies, especiallyfrom Saudi Arabia and Middle East have not shown any signs ofreducing their sales (Eaton and Mayers 1). Therefore, the drop in theprice is kept low and constantly sustained to lower levels.

Whilethe drop in the price of oil has led to several impacts, the threebusiness journals focus on different perspectives if the prices. InWall Street Journal, Eaton and Mayers (1) discuss the negativeeffects of the oil prices on the oil-producing companies in theUnited States. According to Eaton and Mayers (1) the stock price ofthese companies has started dropping as seen in the recent statistic. At the same time, Houston Chronicle focuses on the dilemma that theU.S oil companies have on whether to continue investing in oil ornot. This is because of reduced oil revenues due to the drop inglobal oil prices.

Similarly,the New York Times (1) reports that the stock market for some of theoil companies in the United States have declined. However, the NewYork Times (1) reports that lower oil prices will be beneficial forthe economy in the long-term. This is because the cost of productionin the economy will reduce and reduce the prices of the consumergoods. At the same time, the cost of transportation will lower withthe industries that depend on the transport industry having afavorable environment. If the price cuts by the Saudi Arabian oilproducing companies persist, these industries will continue tobenefit. This is because as the price for oil prices reduce, thesupply of the commodity is constant, thereby maintain the low prices.

WorksCited

Eaton,Collin andMeyers, Rhiannon. Fallingoil prices produce dilemma.Houston Chronicle, Web,Accessed, November 20, 2014&lthttp://www.houstonchronicle.com/business/energy/article/Falling-oil-price-presents-production-dilemma-5870537.php&gt

Friedman,Nicloe. U.S.Oil Prices Fall to Three-Year Lows.Wall Street Journal, Web, Accessed, November 20, 2014&lthttp://online.wsj.com/articles/saudi-price-cuts-to-u-s-see-crude-fall-1415100032&gtNewYork Times, Dropin Oil Price Produces Big Winners and Losers. Web,Accessed, November 20, 2014&lthttp://www.nytimes.com/2014/11/05/business/daily-stock-market-activity.html?_r=0&gt