In October last year, our First Person columnist Christopher Adams warned that oil
"may have further room to fall" - and that has certainly been the case. This week, the price of oil fell below $50 a barrel, as overproduction pushed prices to their lowest point since April 2009. But does it all spell doom and gloom for markets worldwide?
Fears for fracking
Climate News Network's Kieran Cooke is far from optimistic, predicting that overproduction could spark a crisis.
20%
The US fracking industry accounts for around a fifth of the world's total crude oil investmentIncreased production from US fracking operations means oil supplies have increased, but slow global economic growth means there is now a lack of demand, notes the former BBC and
Financial Times correspondent.
"Fuelled by talk of the financial rewards to be gained from fracking, investors have piled into the business," he said. But while the US fracking industry currently accounts for about 20% of the world's total crude oil investment, investments could become increasingly vulnerable if oil prices continue to drop.
"There are now fears that many fracking operations may default on an estimated $200 billion of borrowings, raised mainly through bonds issued on Wall Street and in the City of London," Cooke revealed. "In turn, this could lead to a collapse in global financial markets similar to the 2008 crash."
Climate News Network piece
Winners and losers The Guardian's Phillip Inman takes a more balanced view, acknowledging the cost to oil-exporting nations but also stressing the financial gains for many other European countries.
"Russia is already hurting as a combination of falling oil prices and sanctions imposed by the west have seen its economy contract for the first time in five years," said Inman. Venezuela and Iran are also feeling the effects, while "the potential shockwaves on global financial markets from sharp price moves" gives investors reason to be wary.
But low oil prices also boost profit margins for many businesses, which benefit from the reduced costs of raw materials, notes Inman. In time, the slump in crude oil will "almost certainly" lead to a worldwide economic boost. But it could be a waiting game, he adds.
The Guardian blog
Broader benefits
MarketWatch's Anora Mahmudova and Carla Mozee agree that there are positives for the economy, but they also express doubts that these will placate investors. "Investors appear to discount the positive effect of lower oil prices on the broader economy and continue to view the slide in crude as a symptom of slower global growth," they wrote.
They quote JJ Kinahan, Chief Strategist at TD Ameritrade, who explained: "There is a tremendous appetite for fixed income - mainly because of nervousness about commodity markets. "When stock investors focus on oil prices, their first reaction is selling and unwinding of long positions."
Kate Warne, Investment Strategist at Edward Jones, agrees. "In the long term, lower oil prices are a positive to major economies, but until oil finds a bottom, there will be short-term fear over global growth," she said.
MarketWatch story
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