Is crude price decline good or bad? – Energy Economics 102!!
Crude prices have declined by more than 20% since June this year, creating turbulences/confusion across various governments. So, the question: Is it good or bad? The answer is: If you are a net oil exporting nation then it is bad for you and if you are a net oil importing nation then it is good for you. Going away from Macro Economics into Micro Economics, All oil producing companies are having a tough time trying to sell their product. Going by the analogy of countries all oil consuming companies should start feeling good. But on the contrary, every one is suddenly concerned whether they are oil producing company or oil consuming company. Why? Many oil/energy consuming companies which are heavily dependent on oil & natural gas as their input have seen a decline of more than 20% in their input costs. So, technically their margins should have gone up. Yes, the margins would go up only for those companies whose sale price hasn't come down as much as the input cost