The global oil price dives today as Iran refuses to cut its oil production and Saudi Arabia according to the previous report will accept any production cut without the cooperation of Iran and Iraq, so Saudi Arabia is not likely to cut its oil production as well. I always believe the oil price is experiencing a long period of falling trend that the OPEC countries will have more and more difficulties to cooperate with each other, as once the competition starts, it will then increase automatically.
The falling oil price could put more pressure on the world economy, especially it can force down the inflation rate. As oil has been used widely in current industries, the falling oil price makes production cheaper, which can lead to a decrease in the prices, when the companies face greater competitions or weak demand. Currently there is a weak demand around the world, the demand for goods and services. Although the market seems confident about the future world economy, compared with the previous performance, the market has become much more risk averse, as we can see that low risk assets have become far more popular, the fixed income funds attract more money than other funds with higher risks, more hedge funds close than those open. The extreme risk averse environment could actually enlarge the risk in the economy, as they force down the returns of investment and create an unfriendly environment for new businesses and smaller firms. The deflation and the low return of investment including individual investment and the risk averse behaviour of the financial institutions will come together and contribute to a low economic growth, a continuous weak demand.
The fall of oil price and the low economic growth will interact with each other and force each other further downwards. Therefore, the falling oil price could last for at least one decade and the low economic growth must have some kind of new solutions.
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