{"id":2590,"date":"2016-02-08T08:30:44","date_gmt":"2016-02-08T07:30:44","guid":{"rendered":"https:\/\/blog.iese.edu\/doing-business\/?p=2590"},"modified":"2016-03-20T11:45:51","modified_gmt":"2016-03-20T10:45:51","slug":"why-cheap-oil-is-both-good-and-bad-for-business-and-the-world","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/doing-business\/2016\/02\/08\/why-cheap-oil-is-both-good-and-bad-for-business-and-the-world\/","title":{"rendered":"Why cheap oil is both good and bad for business and the world"},"content":{"rendered":"

Back in October\u00a0, I wrote a piece<\/a> about the prospect of oil for $20 per barrel and as the scenarios is looking ever more possible<\/strong>, it seemed a good time to give politics a break and re-visit the issue. In its last update<\/a>, the U.S. Energy Information Agency estimated that the benchmark Brent price will continue below $40 per barrel for 2016 and below $ 50 in 2017<\/strong>. The agency expects the other reference, West Texas Intermediate to be $2-3 lower than Brent<\/strong>. Within this overall framework there could be “volatility<\/strong>” due to questions on how fast Iran can bring its supplies into the world market.<\/p>\n

Yin and Yang<\/strong><\/h3>\n

Like pretty much everything in life, there is duality in the current low price and on the one hand it brings enormous benefits and on the other serious problems and concerns<\/strong>.<\/p>\n

\"imgres\"<\/a>The benefits can be felt throughout the global economy as energy becomes cheaper across the board. In the Unites States, for example, gasoline has dropped to below $ 2 per gallon <\/span><\/a>\u00a0in\u00a0many parts of the country and this has stimulated sales of larger more powerful cars<\/strong>.\u00a0What is interesting is that while conventional wisdom and common sense tells us that lower energy prices should bring economic growth<\/strong>, there is a flurry of articles in the mainstream press saying that this time its not going to happen<\/strong>.<\/p>\n

While I personally take some of these stories with a grain of salt, what is true is that the lower prices have hit several key parts of the global economy fairly hard <\/span><\/a> and may cause a ripple effect which puts a damper on the positive benefits.<\/p>\n

In the first place, oil and gas companies are losing billions<\/strong> and\u00a0and have seen their share prices plummet despite massive lay offs and the cancelation or suspension of projects across the value chain.<\/p>\n

Secondly, as discussed by in October, a number of countries around the world depend on oil<\/strong> revenue to fund their day to day operations and the drop is prices has placed enormous strain on a number of countries including:<\/p>\n