The energy markets are tanking and are at levels that have not been seen since “The Recession” of 2009. Opinions are divided on the effects of the fall. Some say it is good for consumers, whereas, others say it is bad for the global economy. We analyze the overall effects of low crude oil prices on the industry, the major oil-producing nations, consumers and the overall global economy.

The severity of the fall can be seen in the chart below.

Top 10 crude oil producers which are being affected:

A glance at the charts of the top 10 crude oil producers shows the clear shift from Saudi Arabia to the US, as the largest energy producer in the world.

An analysis of the top producers of oil gives us a clear picture of the effects of this fall on the global economy. Does the drop in price have far reaching effects, which may lead to geopolitical tensions in the world? Is the power to decide the pricing shifting from the hands of the OPEC nations, for the first time in decades? Are the low prices laying a base for a much larger uptrend in the future?

Effects of low crude oil prices on the US economy

The US is both the largest producer, as well as the largest user of crude oil, in the world. Domestic supply caters to 50% of daily needs, and the other 50% is imported, from around the world. The production from the US Shale wells have increased rapidly in the last few years, and the industries associated with shale oil are being crushed.

Shale oil drilling is unprofitable at these levels

The boom in oil prices, and an improvement in fracking technology, has led to a rapid growth in the number of shale oil wells. However, according to various reports, most of the shale oil wells are profitable only when priced above $60/barrel. Some of these companies have taken large loans, in order, to expand their production, and with prices remaining low, these loans are likely to become unserviceable. A failure of the companies with heavy loans is likely to strain US Banks, which have loaned the monies to said companies. Along with the crude oil producers, associated industries, i.e. the equipment suppliers, the hotel industry and truck companies are also struggling due to a decline in prices.