We provide a full menu of financial services in Perth. While we can only provide specific information and recommendations during an individual consult, we do have access to a lot of information we can pass on to consumers. We came across some information we think is relevant to a lot of Perth households: the effects of falling oil prices.
Recently, in his column “Oliver’s Insights,” Dr Shane Oliver covered the effect of falling oil prices. Dr Oliver is the Chief Economist for our parent company, AMP Capital. He is also the AMP Capital Head of Investment Strategy and Economics. His article was called, “The plunging oil price – why and what it means.” We would like to pass on some of the information to you.*
In two years, oil prices have gone down 70%. This is because supply has surged in comparison to demand and because the US dollar is high. The price could fall as low as $20 per barrel, but Dr Oliver believes the supply will decrease soon.*
Dr Oliver feels that oil producers have suffered from the fall in prices, but that the situation will eventually foster growth. Currently, the average Australian household is spending $14 per week less on petrol than it did two years ago.*
Why Have Oil Prices Fallen?
Dr Oliver attributes falling oil prices to four main factors. Emerging world growth is beginning to level off, lowering demand for oil. Middle East politics also play a role. The re-emergence of Iran has increased supply. Other political factors are more complicated.*
Technology has also played a role as many producers have been able to maintain production even in the face of low oil prices. The rising US dollar has also affected commodities worldwide.*
What Does It Mean to Investors?
Dr Oliver feels that “the negative effects on producers is likely to predominate the positive impact on consumers” in the share markets.
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*AMP Capital, Dr Shane Oliver. “The plunging oil price – why and what it means.” 28 January 2016.