The “Oily” economic mess – What happened? (Broken down in 650 words)

“The price has gone down AGAIN?”
“What in the WORLD is happening to oil?”
“I’m really intrigued but can’t be bothered to sit down and watch an hour’s worth of current affairs”

Do any of the above sound like you?

If so, then fear not inquisitive warrior, for I shall explain this economic crisis in the most concise and simplest of terms. After the next 15 minutes (or less, depending on your reading speed), I hope you’ll have a better understanding of what on earth happened to the price of oil.

  • Iran Sanctions

Unless you’ve been living in a cave for the better part of 2015, you’d know that Iran’s sanctions have been lifted.

“Okay, so what Sully?”

Well, Iran is home to the second largest oil reserve in the Middle East (Fourth largest in the world). This means that there are now 3 million extra barrels of oil per day in the market, forecasted to possibly grow to almost 4 million barrels per day by January 2017.

  • Shale Oil

It’s pretty well known by now that the US has a significant interest in the oil market, and it has maintained this interest for the last couple of decades or so, as shown by various shale oil companies emerging and starting to produce “Shale Oil”(A substitute for crude oil extracted from sedimentary rocks)

If you know a little bit of economics, you’ll know that if the price of a substitute good for a product goes down, the price of that particular product goes down as well.

For example, let’s say hypothetically, if you have Car A which is very unique, very important, and has little to no mainstream substitutes. It sells for a high price for a very long time.
Then, along comes Car B with the exact same features, but only cheaper. Logically, all the consumers flock to Car B as it does the exact same job for a lower price.

Car A is Crude oil in this scenario, while Car B is representative of Shale Oil. (Both are known as substitute goods)

Now, if you know even a bit of Econ 101, you’ll know that if the price of a good goes down, the price of its substitute also inevitably goes down, as the latter starts losing sales to its now lower priced substitute.

This is exactly what has happened with Crude Oil. As Shale came in with a cheaper substitute for Crude Oil, the world’s largest Oil consumer, the United States, recorded trends of people switching from traditional crude oil to home-grown shale oil. This inevitably led to a fall in the price of crude oil.

  • Little to no increase in demand

With Shale Oil and Iran’s Crude oil entering the market, the demand of the oil market is still, more or less, the same. People aren’t suddenly demanding millions and millions of extra oil barrels in their daily lives. That type of change would take years, perhaps even decades. So, once again, basic economics tells us that when supply increases in a market with stagnating demand, the price plummets. (Displayed below)

S-increase

Even China, the world’s second largest oil consumer, is curbing its demand of oil as it predicts it’s economic growth to start diminishing. Moreover, tighter restrictions by the Chinese government on oil consumption will further reduce oil demand, as the government looks to reducing the infamously bad air pollution of China.

My two cents

There are still a million barrels of oil being produced in excess per day, and the number is forecasted to further increase this year. It seems if the current trend continues, the oil market will drown in oversupply and we could see the price falling to $20 or less.

However, a lot of countries depend on oil for their economies, so I am certain that the governments economists will contrive a policy to alter this plummeting price.

And there you have it, you now know more than before about why the oil price acted like it did. And if you already knew all of this, pat yourself on the back for me!

 

 

Why the Political to Peace approach is BS

You lot must be getting bored by constant yapping about Nuclear warheads and what it did AND what it can do AND why we’ll all better off with it eradicated. Fear not, This will be my final piece on the subject and I’ll try to keep it succinct.

But a Nuclear War wouldn’t really happen man. Our country wouldn’t propagate one and other countries have no reason to target us. Besides, Other countries and the UN would intervene, blah blah blah” – Average Joe

All these assumptions people live under can be proven otherwise in one word. Palestine.
Although the bombs weren’t made of Plutonium or Uranium, Palestine was still hit with bombs leaving a deep emotional and mental scar on those innocent souls. The Palestinians probably thought that they were safe, living under the false pretense that the World would not allow such injustice. That they would intervene. Surely the UN would stand up for their most basic right of human safety? If not, at least their fellow Arabian countries, with whom they share a common bond of Religion, language and customs?

But not a single body answered their call for aid. All the Palestinians heard was a dead line on the other end.

Fear not though, since it was “condemned” by the majority of the world. That should make up for the 2000+ Palestinians killed (500 of them just little children). Shouldn’t it? YOU be the judge

Statistically speaking, what happened to Palestine probably wouldn’t happen to us since the majority of the readers/writers here live in Developed countries with proper defense systems in place. Lets take the example of my country, Pakistan, and India. The situation is not dissimilar to that of Russia and the US. Both have most of their Nuclear Warheads pointed at each other. However, neither lifts a finger since each is deterred by the certainty of the other’s response and the inevitable destruction it would cause. Besides, neither developing economy can endure the repercussions of a war.

On the other hand, lets not forget most of us have have a very limited role in what our government does. We might be able to elect the person we think is “Right for the Job” (ie if we live in a democracy) but we have no control over his/her actions. One wrong move at the wrong time by a higher up and millions could end up paying for it with their lives, especially if it triggers a war. And lets not even ponder the possibility of a country involved in a war having access to Atomic Power.

I wandered off topic a bit but my point is that this is a very serious issue taken lightly by most of us. And the current approach in trying to secure world peace while simultaneously trying to juggle Nuclear missiles is never going to work. Do these politicians deliberately patronize us by thinking that we are so naive?

Those who build & labor in the heat – under appreciated?

I was in the local store recently and saw a construction worker pick up what looked like a drink. Maybe it was curiosity or my shamelessness to mind my own business but I approached a little closer. The guy looked at the price, pondered for a bit and simply put it back in its place.

I looked at him and saw the silent cry of sadness reverberating through his face presumably due to the poignant reminder of his financial reality (Read the preceding post for appropriate context). After he had left I examined the drink, an iced tea priced at AED 2.50 ($0.68), and my heart sank right through me as the gravity of his simple act hit me. I realized how privileged and ungrateful I was for all the privileges I’ve ever had.

Not only are they underpaid, they’re undervalued as well. So the next time you pass by a worker/builder/construction worker and you’re not in a hurry, give him a smile or a little pat on the back. Let him know YOU care and appreciate his efforts.

For these hard working individuals of society are under appreciated, and their efforts shall forever be lost between the sweat & cement of the brick walls they spend their lives building.

Do we honestly value our home builders enough?

A couple of weeks ago I was in a labor camp distributing “Care Packets” (Basically consisting of 9-10 basic necessities like flour, Rice, Powdered Milk, etc.). If you’re wondering “Why a labor camp?”, you probably come from a developed country, in which case you’re forgiven if you think that builders live perfectly normal & fulfilling lives (as is generally the case in these first world countries).

Here, however, these laborers earn around AED 700-1000 ($200-270) monthly which is very little even when adjusted for parities. Secondly, majority of their incomes go back to their homeland in the form of current transfers, as most of the laborers sacrifice their own living comforts to support their own fledgling families & kids back home. Some have the additional responsibility of supporting their parents as well. Moreover, A lot of them do not hold their newly born children until months later, something no parent should ever have to go through…

Another reason I feel for these laborers – most of whom are construction workers/builders – is that they have to often work under the unforgiving smoldering desert heat of Dubai (We have literally 9 months of summer here). Night shifts aren’t exactly welcomed with open arms either as they bring with them the intolerable humidity. As great as Dubai is, weather is not one of its prettier aspects.

Stay tuned, I’ll be posting a bit more about this topic peeps.


“I’d rather change the world, than let it change me” – Original Quote