Will Economic Ice Age Affect Oil Market?


Today, the extraction of oil from the natural reserve is not as profitable as it was earlier. Currently, various oil companies have gone bearish and witnessing a steep downfall in the stock price. Analysts suggest that the reduction in fossil fuels by various industries is the prime reason for the downfall of the oil market across the globe. The oil industry in the midst of what financial experts call it “Ice Age”. This ice age occurs when a large number of debts during the development of an economy that eventually leads to exceptionally sluggish growth of the stock market. One such incident that experts quote for the phenomenon is the crash of the Japanese Stock Market in 1980.

Albert Edwards a financial strategist for French investment bank Société Générale writes that similar event took place in Europe and U.S. Stock Market during 2008/2009 which eventually led to the market crash.

What is Causing the Depression in Oil Industry?

The low prices of crude oil lead to sluggish investment in the industry. This results in almost stagnant social welfare payments in prominent oil-exporting countries. As a result, employment and income have reduced substantially as compared to what they use to be earlier. Additionally, the overall restricted growth of the global economy further reinforces the sluggish pace of the oil industry.

According to Gail Tverberg, price is the sweet spot for the oil industry. It is this price that ensures healthy profit for the businesses. However, researchers believe that the price that is beneficial for business and affordable enough for the consumers, do not overlap. Either, the optimal price that can result in a healthy profit for the business is quite high for the consumers and the affordable oil price for the consumer is extremely low for the oil companies. It is because of this reason, the overall stock price of the oil has taken a steep downward curve.

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