Steep Drop in Oil Prices Causes Global Hysteria
The recent astonishing drop in the price of crude oil has garnered the attention of both PhD economists and your average daily worker alike. The price has fallen all the way from over $100 a barrel in late 2014 to its current price of $29 a barrel as of January 19, 2016 and this drop is also sending global stock markets into a frenzy. In a recent BBC Business article author Andrew Walker notes both the positive and negative impacts that this steep drop in oil prices can have on the global economy. The oil and natural gas industry is a great example of Boltanski and Chiapello’s definition of capitalism. It is indeed true that oil companies such as Saudi Aramco, Gazprom, and the National Iranian Oil Co. “possess[es] a surplus and invest[s] it to make a profit that will increase the initial surplus” (6). What these companies do is employ all four factors of production (land, labor, capital, and entrepreneurship) to extract oil and/or natural gas from the earth and sell it to consumers all around the world for a profit; which seems like a perfect example of the capital accumulation witnessed in the “spirit of capitalism.”
The reason for the recent drop in the price per barrel of crude oil can be explained by two main factors and laws of basic economics, which are supply and demand. There are generally two main reasons for the decrease in the price of a product and that is when there is either an increase in supply (positive supply shock), or decrease in demand (negative demand shock). Economists are currently fairly divided on whether they believe the recent drop in oil prices is for positive reasons (increase in global supply), negative reasons (decrease in global demand) or a mix of both. The author of the BBC article tends to focus on the benefits of cheaper oil that net importing regions such as the EU, China, and U.S will have but also acknowledges the idea that it might come as a sign of an overall lack of demand, which in many cases points to a global economic slowdown or recession. On the flip side it could also be mostly due to the recent technological advances in oil and natural gas extraction technology which would be a net positive for the world economy.
Although the oil and gas industry is regulated in different forms varying from country to country, men like Karl Marx would see this industry as a quintessential example of the unfair system of capitalism because the laborers (such as the mud loggers) are being paid far less than the owners of the massive oil companies and do not have ownership of the fruits of their own labor. This is in contrast to somebody like Simon Kuznets who would have most likely seen the oil industry as a positive example of capitalism, because they are able to extract a natural resource (oil/nat. gas) that is in demand and make it accessible to millions of people all over the world. Kuznets might also have noted something like the shale oil revolution in America, where new technology has recently developed that allows oil companies to extract oil and gas from locations that were previously impossible to reach, as a positive instance where entrepreneurs developed new technology in order to make a profit, while simultaneously creating jobs and lowering the cost of oil. A third famous economist, Thomas Picketty, is probably not too keen on the current situation of the oil industry due to the massive (and especially increasing) inequality in pay between the top Big Oil CEO’s and the rest of the workers in the industry. He would also most likely point out the massive subsidies that the oil companies are receiving (especially in America) as an unfair advantage and propose for higher taxes on wealthy earners along with an abolition of tax code loopholes and subsidies to help narrow this wealth gap.
The recent drop in oil prices has many economists torn on whether it will have a positive or negative impact on the overall economy and is currently as divisive an issue as the oil and gas industry as a whole. Some economists will tell you the big oil companies are just a result of capitalism and benefit the world as a whole while others will condemn them for their high profits and occasional shortages that can plague countries around the world such as in the 1970s oil crisis. They say a resource like oil is too valuable to be at the mercy of greedy capitalists so they would prefer it to be controlled or severely regulated by a state, just as Marx would advise. Either way, the news of the severe drop in oil prices will either be celebrated as a result of new technological innovation and increased productivity or feared as a signal of weak consumer demand and precursor for an eventual global recession. Many are trying try to predict but only time will tell.
