Cheaper oil could continue into 2015, to global benefit

IN the past two weeks, the oil price plunge has accelerated, capping a year in which oil has lost more than one-third of its market value. Crude oil, for instance, has fallen 36 per cent this year alone as it dipped to below US$70 a barrel.

The impact of the oil price decline has generated divided opinion. On the one hand, policymakers are betting on this development to spur economic growth: lower input prices will help businesses, while falling consumer fuel costs will boost consumption. But some economists and observers have warned that declining oil prices could plunge many countries into budgetary and balance- of-payments deficits. Even the US may not escape the pain; its shale industry is highly leveraged, which could lead to serious financial problems for several companies if oil falls below the costs of recovering shale.

There are merits to both arguments. Low oil prices could stimulate economic growth. However, not every economy stands to benefit. Naturally, the countries likely to gain the most from falling oil prices are the large importers of energy. India and China - two rapidly growing and large economies - are in pole position to benefit, especially since both are huge consumers of energy.