Reasons For Falling Oil Prices

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This report will evaluate arguments and present conclusions on the following statement: “The recent fall in oil prices has been described as either a big tax cut or a contributor to potential deflation in the UK’’.


2.1 Falling Oil Prices:

From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 a barrel. The situation changed in June 2014 when prices have more than halved. Brent crude oil has now fell below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel.

There are two main reasons for falling oil prices - weak demand in many countries due to unexciting economic growth coupled with flowing US production.
However, low oil prices cause much trouble in other countries, for example, in Russia, being one of the world 's largest oil producers. Russia’s economy heavily depends on energy revenues, with oil and gas accounting for 70% of export incomes. Russia loses about $2bn in revenues for every dollar fall in the oil price, and the World Bank has warned that Russia 's economy would shrink by at least 0.7% in 2015 if oil prices do not recover.

With Europe 's flagging economies characterised by low inflation and weak growth, any benefits of lower prices would be welcomed by beleaguered governments.

2.2 What is a tax cut?

A tax cut is a reduction in taxes. The immediate effects of a tax cut are a decrease in the real income of the government and an
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