Oil Prices

I hardly need to post a link to inform anyone that gas prices are down. You are probably already aware that crude oil prices have dropped over the past month or so from around $100 to the mid 80s.

What might be news is that Goldman Sachs has forecast 2015 crude oil prices to be even lower. They are predicting prices to be around $75/barrel in the West Texas market and $85 in the Brent market in the first quarter of 2015. They also predict that prices will drop another $5 lower in both markets in the second quarter. Of course, as the Reuters reported lined to above mentions, other forecasters are more bullish about oil price, but we at least have some reason to contemplate the probability that oil prices will remain low for the next 6 months or so.

Beyond the relief this will provide consumers at the gas pump, a period of lower than usual oil prices will have a big impact on Russia. Even members of the Russian government are acknowledging that lower oil prices are a serious blow to their budget and economy.

This blow may be politically significant to the extent that the regime depends on the flow of oil revenue to pay off its supporters. Where Western sanctions have been inflicting pain on the Russian economy and consumers at large, a drop in oil prices diminishes the government's primary revenue stream. Thus, it may come closer to weakening Putin's hold on power than any of the sanctions yet employed.

Of course, unlike sanctions, oil prices won't go up if Russia complies with Western demands and prices are bound to rally at some point in 2015. Therefore, low oil prices might weaken Putin in general without providing more pressure to act in the desired way vis-a-vis Ukraine. Still, it is an interesting development that is worth watching.

It will also be interesting to see what impact lower oil prices have on Venezuela's teetering economy.