Petro-Countries Could Introduce A Major Shift In The Markets

As consumers gear up for Thanksgiving and then holiday shopping, they can add one more thing to their list of blessings – the falling price of gasoline.

Since most forms of shipping are propelled by oil, most everything we buy is affected by its changing price. With oil trading under $40, we’re getting a break that only a year ago seemed improbable to most.

And don’t expect prices to rebound anytime soon. The oil glut could be with us for years. OPEC members keep pumping out the stuff in an effort to drive shale producers in the U.S. out of business, and it looks like it’s working.

But that doesn’t mean the oil in the U.S. disappears. It will be there for when either prices go up or production costs drop. Because there is so much supply waiting at the edge of the market, it’s hard to see how prices could zoom higher without a major market disruption, such as a major war in the Middle East.

Continued low oil prices hurt the energy sector, no doubt. Cities in North Dakota, Louisiana, Oklahoma, and several other states that were beehives of activity just a year ago are now almost ghost towns.

But while these places are suffering economically, they don’t threaten the entire nation. The U.S. is fortunate to be the largest economy on the planet, with a wide diversity of industries.

Other countries aren’t so lucky. Their oil pain is going to be deep, and last for a long time.

When the U.S. was busy importing oil, running up its trade deficit, oil-rich countries were collecting dollars at a record pace.

Many of them took the opportunity to build their wealth instead of spending everything, pouring the dollars into sovereign wealth funds (SWFs).

Today, these funds are among the largest institutional investors in the world, with oil-based countries accounting for roughly $7.3 trillion dollars.

With oil trading at less than half of what it was in the summer of 2014, and petro-countries suffering with busted budgets, it’s likely these countries will have to sell some of these accumulated assets. They’re already expected to use all of their petroleum proceeds for social spending.