Gains from low oil prices can be substantial for developing-country importers if supported by stronger global growth, says a World Bank Group analysis of the oil price decline, contained in the latest edition of Global Economic Prospects.<\/p>\n
The decline in oil prices reflects a confluence of factors, including several years of upward surprises in oil supply and downward surprises in demand, receding geopolitical risks in some areas of the world, a significant change in policy objectives of the Organization of the Petroleum Exporting Countries (OPEC), and appreciation of the U.S. dollar.<\/p>\n
Although the relative strength of the forces driving the recent plunge in prices remains uncertain, supply related factors appear to have played a dominant role.<\/p>\n
Soft oil prices are expected to persist in 2015 and will be accompanied by significant real income shifts from oil-exporting to oil-importing countries. For many oil-importing countries, lower prices contribute to growth and reduce inflationary, external, and fiscal pressures.<\/p>\n
\u201cFor policymakers in oil-importing developing countries, the fall in oil prices provides a window of opportunity to undertake fiscal policy and structural reforms as well as fund social programs,\u201d said Ayhan Kose, Director of Development Prospects at the World Bank.<\/p>\n
However, weak oil prices present significant challenges for major oil-exporting countries, which will be adversely impacted by weakening growth prospects, and fiscal and external positions.<\/p>\n
If lower oil prices persist, they could also undermine investment in new exploration or development.<\/p>\n
This would especially put at risk investment in some low-income countries, or in unconventional sources such as shale oil, tar sands, and deep sea oil fields.<\/p>\n
\u201cIn oil-exporting countries, the sharp decline in oil prices is a reminder of significant vulnerabilities inherent in highly concentrated economic activity and the necessity to reinvigorate efforts to diversify over the medium and long term,\u201d adds Ayhan.<\/p>\n","protected":false},"excerpt":{"rendered":"