The oil crisis has been an ongoing global problem since as early as 2014, but what does this crisis mean for Australia?
The current oil crisis
Oil prices fell from above $100 per barrel in 2014 and dropped down to the low levels of $30 per barrel in 2016; the market has since recovered. However, there is worry that we may dip to these levels once again.
The current crisis has been attributed to excess supplies of US shale oil. Oil companies and suppliers depend on the revenue generated from oil sales, so excess stock makes it hard for them to fund their fiscal budget.
Increasing rivalry between Iran and Saudi Arabia has not helped the oil crisis and has caused the Organization of the Petroleum Exporting Countries (OPEC) to intervene, leading to an agreement between OPEC and non-OPEC members to freeze/ cut oil production in November 2016.
The deal was due to continue until March 2018. However, cracks have started to appear, and there are fears that the deal will break apart.
The effect on the rest of the world
The oil crisis has affected the economy; this has a knock-on effect on the remainder of the world. Modern society relies heavily on economic growth and the slightest economic dip has a rippled effect.
The oil industry, when booming, brings tremendous economic growth. However, this also means any hit to the oil industry negatively affects economic growth. The oil crisis in the past have caused recessions and brought countries to their knees.
Economist always pays close attention to the oil industry due to the major impact price increase and decreases have.
The effect on Australia
In the 1990s, years of strategic planning meant that Australia almost reached oil self-sufficiency, however, in the 2000s trends changed and suddenly the gap between consumption and production started widening. Currently, Australia is only 38% oil self-sufficient.
Instead of being, self-sufficient Australia has been turning to oil imports. While this may improve the supply of crude oil, this leaves the country vulnerable. The current oil crisis means that supplies have had to freeze/cut production, this means that another price dip could cause an economic catastrophe.
It is in the countries best interest to start aiming towards oil self-sufficiency rather than relying on oil imports since the oil industry is incredibly unstable with little signs of stability.
The oil crisis has been brewing since 2014 but reached its peak in 2016; however, despite signs of recovery increased instability has meant that economists fear that another dip is imminent.
Excess stock of American shale oil and ongoing rivalry between Iran and Saudi Arabia has said that the OPEC has had to work together as members and non-member to reach an agreement to freeze or cut production.
An agreement was reached in November 2016. However, there have already been signs of stress, and it is feared that the deal will collapse well before the March 2018 end date.
Up until 2000, Australia was heading in the right direction towards full oil self-sufficiency, however, due to a change in trend the country started to rely more on imported oil. This has seen a decline in production and leaves Australia incredibly vulnerable due to the instability in the oil industry.
To protect ourselves from the fallout of a potential collapse in the oil industry and reach 100% oil self-sufficiency, Australia should focus its efforts on increasing oil production.
Primary Keyword: oil crisis
LSI Keyword – Variants: oil prices, current crisis, US shale oil, oil companies, oil sales, oil industry, oil self-sufficiency, oil self-sufficient, imports of oil, crude oil