The
Real Price of Oil Is Far Lower Than You Realize
Grant Smith
January 14, 2016 —
1:01 AM CET
While oil prices
flashing across traders’ terminals are at the lowest in a decade,
in real terms the collapse is even deeper.
West Texas
Intermediate futures, the U.S. benchmark, sank below $30 a barrel on
Tuesday for the first time since 2003. Actual barrels of Saudi
Arabian crude shipped to Asia are even cheaper, at $26 -- the lowest
since early 2002 once inflation is factored in and near levels seen
before the turn of the millennium.
Slumping prices are
a critical signal that the boom in lending in China is “unwinding,”
according to Adair Turner, chairman of the Institute for New Economic
Thinking.
Slowing investment
and construction in China, the world’s biggest energy user, is
“sending an enormous deflationary impetus through to the world, and
that is a significant part of what’s happening in this oil-price
collapse,” Turner, former chairman of the U.K. Financial Services
Authority, said in an interview with Bloomberg Television.
The nation’s
economic expansion faltered last year to the slowest pace in a
quarter of a century.
“You see a big
destruction in the income of the oil and commodity producers,”
Turner said.
Saudi prices would
be less than $17 a barrel when converted into dollar levels for 1998,
the year oil sank to its lowest since the 1980s.
The benefit for
consumers from historically low oil prices is being blunted by
changes in fuel taxation and a reduction in subsidies, according to
Paul Horsnell, head of commodities research at Standard Chartered Plc
in London.
“But it certainly
shows that current prices are very low by any description,” he
said.
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