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LAST week OPEC decided not to cut their oil production in order to prop up the sagging price of oil. Predictably, the news of their inaction caused oil prices to fall even farther. While this may be good news for drivers and frequent flyers, it might not be good news for some other sectors of the Finnish economy.

THE price of oil has fallen steadily from about €82 per barrel in June to €56 now. In terms of the US dollar, in which most oil is bought and sold, prices are down 37% over the past five months. Market prices have been under pressure from both the supply and demand sides.

SUPPLY has increased due to some producers like Libya returning to the market, but the biggest change has been in North America. Due to fracking America has increased its production of oil to the highest level since the late 1980s. Fracking – which involves pumping high pressure liquids underground – is increasing around the world.

SIMULTANEOUSLY demand for oil has weakened in several of the major consumer countries, like China and Japan. China first introduced fuel economy laws in 2004, but has already neared American standards and plans to match Europe by 2020. As supply has increased and demand has softened, prices have collapsed.

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David J. Cord
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