Oil Price Fall is a Good Thing for South African consumers
By Editor, Sunburst Africa
Johannesburg (Sunburst Africa)- Investors grapple with the reality that crude oil price have fallen to a four-year low, and heading for the biggest weekly tumble since 2011, after OPEC refrained from reducing output. Market analyst the world over have been talking about the impact of this on markets, investors and oil producers. Let us examine the current dynamics from a demand and supply perspective.
Old demand and supply theory teaches us that the lower price the less the supply and the higher the price the more the supply. But in the case of oil prices- supply is hardly determined by regular market forces of demand and supply. The OPEC group meet regulally to determine supply. As we saw yesterday, the OPEC meeting decided not to cut supply despite the fallen prices to below $80. On the one hand, manufacturers of oil are bleeding at the moment as the oil price continue to fall and translating into lost revenue, lost profits and throwing away all profit forecast and possible expansion plans in the oil sector. The oil price fall is really bad news for all oil producing and oil dependent economies such as the OPEC nations. There are huge direct and indirect implications of the fall on these nations and on borrowers to these nations. Profitability of the industry has tumbled, returns on investments in the oil sector down, investors in bonds will also be impacted as the yields will decrease. Enough of the bad news- let us look at why this is good for South African consumers
As oil prices have fallen to below $80 per barrel for crude, South African consumers will continue to benefit as this will translate into decreased petrol prices. There might be even more reduced prices of petrol for South African consumers if the fall in oil prices is not reversed. We should also expect to see subdued food price inflation as cost of logistics and other production costs reduces due to decreased petrol price.
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