A FALL IN OIL PRICES – KILLING TWO BIRDS WITH ONE STONE

The drastic, nearly 30% drop in the price of oil could not have come at a better time for Europe. The falling price of fuel should be considered as a negative tax for the people, and most of the money saved at the pump will almost certainly be spent immediately on other goods or services. The vast majority of European countries (including Hungary) are oil importers, so they are clearly coming out ahead in this process. The impact of this fall in price in my opinion surpasses that of the ECB’s (European Central Bank) monetary loosening policy since the latter’s is delayed and needs time in order to manifest itself in consumption.

Europe’s “rusty” economy isn’t the only beneficiary of the fall in crude prices; her politicians are also cheering. As energy is the Russians’ main export, weakness in the oil price hurts them much more than European sanctions have. The evident decrease in budget revenue coupled with the financial undermining of Russian corporations abroad is a major challenge for Putin and weakens his position in the Ukrainian conflict. I agree with those who have said that recent Russian aggressiveness is connected to Putin’s failing attempt to restructure Russia (as we know, in this game, wood, ore and wheat are the strategic commodities). And the foreign conflicts are in large part intended to distract the people from these emerging trends.
My colleague Socrates has also written an article about the oil price drop titled ’Jólesően eső benzinár’ (Feeling Fine with Falling Fuel Prices), which you may find in the latest issue of A lap (available in Hungarian only). An excerpt: In the last few years, the powerful run-up in oil prices, the ever approaching 500 HUF / liter price of fuel and the fear of further price increases led to a lot of trepidation among motorists every time they had to go for a drive, but from the summer price peak to the roughly 20% fall through mid-October, Hungary’s three million automobile owners are most definitely in a better mood now. But before you buy that dream SUV or move out to one of the suburbs, let’s see what the future holds! The article takes a look at where oil prices may go in the future, who could profit from these trends and the impact potential of shale oil. Look for the magazine at newspaper stands and gas stations!