Global ups and downs of cheap oil

Associated Press

Cheap oil will be sticking around for a while.

That reality is wreaking havoc and causing uncertainty for some governments and businesses, while creating financial windfalls for others. Less-expensive crude is delighting consumers in some regions, while leading to widespread job losses elsewhere.

Oil has fallen from $107 to about $30 in the past 19 months. Furious production by the U.S. and OPEC led to an oversupply. Recently, a sluggish global economy has spurred concerns about demand.

NORTH AMERICA

U.S. households have saved hundreds of dollars on gasoline and heating oil. That’s money they can spend in other areas of the economy. Businesses such as airlines that burn large amounts of fuel have reaped savings in the billions. But energy-company profits have plunged, as have their stocks. Layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending. Meanwhile, states such as Alaska and North Dakota need to plug big budget gaps.

Canadian oil companies have slashed budgets, laid off tens of thousands of workers and cut dividends.

Mexico is better insulated nowadays from an oil collapse. Oil accounts for 20 percent on national revenue, compared with 40 percent up until 2012. However, the country has postponed or canceled some oil projects.

MIDEAST

Saudi Arabia and Iraq have been furiously pumping oil, per OPEC’s decision to maintain robust production. Their hope is that the 12-year lows in crude prices will push more-expensive producers, such as U.S. shale drillers, out of the market. OPEC’s production rose by an average 1 million barrels a day in 2015. Now Iran, free of Western sanctions, plans to boost production by 500,000 barrels a day. Saudi Arabia cut back on some fuel subsidies and anticipates an $87 billion budget shortfall this year.

EUROPE

Low oil prices are a boost to the European economy, which is a net importer of oil and gas. It helps consumers in two ways: by making fuel cheaper and lowering the cost of making goods. That lower cost helps bring down consumer prices.

RUSSIA

Russia’s economy shrank by 3.7 percent last year, its worst contraction since 2009. Oil and gas together contribute about half of state revenues. The government now anticipates cuts to the budget for fiscal 2016, which is based on an oil price of $50 per barrel.

LATIN AMERICA

Across Latin America, drilling projects are being shelved, and governments are slashing spending. The IMF is predicting a second-straight annual contraction in the region’s economies.

ASIA

China’s economy grew by 6.9 percent in 2015, the country’s slowest rate in 25 years, raising concerns about global economic strength and contributing to the oil-price decline. China is the world’s fifth-biggest oil producer, but financially strapped state-owned oil companies are likely to cut production. For most of Asia, plunging oil prices have alleviated heavy costs for imported oil and gas.

AFRICA

These are sobering times for Africa’s two biggest oil producers. Oil previously provided 80 percent of government revenue in Nigeria and 70 percent in Angola. Both countries’ currencies have plunged against the dollar.

The depreciation has resulted in higher food prices.