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Editorial Dept

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Who Loses in an Oil Bear Market

The bear market for oil has arrived. Brent crude has dropped by more than 20 percent since hitting a multiyear high in June. Now hovering around $90 per barrel, oil traders are no longer confident that oil prices have reached the bottom.

Low oil prices are great for consumers. They act as a tax cut – more money in people’s pockets can have a material effect on purchasing power, and can provide a modest boost to consumer economies.

But a sudden drop in oil prices is not good for everyone. And the latest turmoil within the oil cartel OPEC suggests that the nerves of member countries are beginning to fray. According to The Wall Street Journal, cohesion within OPEC is beginning to erode as certain countries have begun to compete against one another.

Typically, OPEC acts in concert when oil prices slide too quickly, acting collectively to cut back production in order to prop up prices. However, amid the most recent price decline, Saudi Arabia and Kuwait have unilaterally cut prices in order to maintain market share, a decision that caught some market analysts by surprise. The price cut was intended to underprice oil from the United Arab Emirates, a fellow cartel member.

Similarly, Saudi Arabia has dismissed calls from Iran to cut back production. Iran is particularly vulnerable to low oil prices. Iran’s oil exports dropped from 2.5 million barrels per day (bpd) in 2011 to 1.1 million bpd in 2013 – a 56% decline – due to…




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