Business Day: SA may not gain from oil price drop

If the dilemmas of monetary policy in SA and globally were tough before, they are even tougher now that the oil price has plummeted to six-year lows, and there’s no knowing how low it will go or how long it will stay there.

Brent crude oil was trading at well below $70 a barrel yesterday. The price has fallen by more than 30% in the past three months, sliding to its lowest level since 2009 after the Organisation of the Petroleum Exporting Countries (Opec) shocked the market last week by deciding not to bow to pressure to cut production, keeping collective output at 30-million barrels a day, the same as the past three years.

The move matters for the signal it sends and for its direct effect on the supply and demand balance in a market which has a supply glut. Essentially, this was Opec telling the market that it can no longer be relied on to act as the swing factor to balance the market — that other producers must bear the burden of market adjustment.
MORE