Two years ago a barrel of oil cost over US$ 100, now it trades around US$ 30, a fall of 70%.
Back in the 1980s, economists believed low oil prices were a good thing for many economies including Australia because it had a stimulatory effect. Basically, many businesses are big users of oil (in one form or another), so a low oil price means extra dollars saved for those businesses, which can be directed to expansion or acquisitions. In addition, low petrol prices mean consumers have a few extra dollars left over from filling up the car and can use the money for other expenditure.
But apparently, now everything has changed, low oil prices are a concern because the big global banks lent the oil companies too much money for exploration and to build big mega-projects. The big worry is that the oil companies and alternative energy producers will now not be able to pay back all that money they borrowed during the past decade because of the low oil prices.
This fear and worry about low oil prices is all part of the new world order since the global financial crisis, where we worry about everything including Greece going broke, China slowing, Sydney house prices going too high and commodity prices going too low.
But the reality is completely different !
Despite the mining downturn and all those worrying global issues, our economy is steadily growing and unemployment remains stubbornly low.
The Governor of the Reserve Bank Glen Stevens even recently stated to the politicians in Canberra “we have continued to see evidence that economic activity outside the resources sector has been gradually improving……this continued expansion has occurred in the face of a very large contraction in capital spending in the mining sector and restrained public final spending”.
The real issue appears to be too much worry and not enough hurry.
Obviously small and medium sized businesses are doing their part and hiring people, buying new equipment and expanding operations. But the politicians and big business seem to be wrapped up in inertia. The politicians and big business just want to talk about the problems, concerns and issues without actually making the hard decisions and moving forward.
What the politicians and big business need to gasp is that there are currently many favourable factors impacting our economy which will contribute to future growth, all that is needed in a hurry is a positive attitude and a bit of ticker. Watch and wait, we are experiencing a transition away from dependence on the resources sector and the strong conditions created by the mining boom but in another twelve months buoyant growth will return again, despite all the global worries !
Important Note: These articles have been prepared for general circulation and are circulated for general informational purposes only; these articles should not be regarded as business or investment advice. The articles represent the views of the writers and are subject to change without notice. Additionally, while every care has been taken in the preparation of the articles no representation or warranty as to accuracy or completeness of any statement is given. An individual or organisation should, before any business or investment decision is made, consider the appropriateness of the information in this document, and seek professional advice, having regard to objectives, situation and needs. This document is solely for the use of the party to whom it is provided.