Crude oil on the world market has gone from 100$ to 50$ in a few months. It keeps billions in the pockets of consumers that they will spend elsewhere. It lowers manufacturing costs quite importantly. It bankrupts fracking companies in the US. It bankrupts Russia, Venezuela, Iran and a few others.
Saudis are the main force in the oil cartel OPEC. They decided NOT to lower production to help raising the price. Currently, world production of oil is higher than consumption. Oil bunkers are at near full.
The reason?
Saudi Arabia wants to bankrupt US frackers to maintain their market share. They produce at between 5 to 20$, so they are still profitable. To balance their budget they need about 60$ but they have hundreds of billions saved so they can sustain this as long as it takes.
The US does not mind too much in the short term; they love to see Russia, Venezuela and Iran go bust. And they cannot do much: industry is private business, free country after all. Mid term there are worries when these frackers go bust since they owe hundreds of billions to banks. I m sure the government will help the frackers in the end to prevent them and banks go under. And the strategic interest of US is to become energy independent.
This has major geopolitical impact: The Middle East is becoming less important.
While this is playing on the world stage, US and Europe can be happy with the boost to consumer spending and our industry benefitting from low energy prices. So let’s enjoy the ride!
Not so good news for alternative energy and Tesla though.