So what are the Seven Currencies Affected by the Falling Trend of Oil Prices?
In 2015 and 2016, the prices of oil, gas, and other petroleum products plummeted globally due to increased oil production, discovery of new reserves, and the worries about the declining trend of global growth. The oil prices have declined by an estimated 50% since 2014. The decline reached a level that had not been seen since the 2008/2009 global recession. There is little hope of the prices increasing, and projections from EIA forecasts show that the average price for oil will be average $70 by 2020. However, oil executives hope that it may take long till oil prices get to the level of $90 to $100 per barrel. This global trend has negatively affected Petrocurrency across the globe. Petrocurrencies are currencies, which are significantly affected by the trend in oil prices. Nations with Petrocurrency get a large amount of their export revenues from oil and this portion of the revenue accounts for much of its budget. Here is a list of the seven currencies, which are most affected by the trend in the oil and gas industries.
What is Petrocurrency? How it affects Oil Prices?
Petrocurrency is used by oil producing nations that are trading oil surpluses. Petrocurrency was originally called petrodollars. Oil producing nations tend to use their currencies which tend to rise in value against other currencies when the price of oil rises plus fall when it falls.
The Canadian Dollar
In 2015, the Canadian Bank Governor made forecasts, which revealed that the nation’s economy would regain its stability after years of low oil pricing. The Canadian dollar (Loonie) is known as Petrocurrency, and in August 2016 the Canadian dollar hit an 11-year low as global oil prices continued to plummet. Canada is the 5th largest producer of oil, and oil makes up 14% of the nation’s exports based on a publication made in The Economist. The trend is not promising because the CAD continues to decline and from 2014 to 2015 the CAD fell 19.15%.
The Russian Ruble
The Russian economic condition has been on a decline since the global prices of oil started going down. The long decline has compelled the nation to opt to increase its interest rate to a level of 17% to prevent capital flight from the nation’s economy, which is heavily dependent on gas and oil production. Statistical information from Russia shows that the country’s export of oil and gas products makes up 70% of the export value, while revenue from oil and gas makes up 50% of the Russian Federal Budget. In 2014, the North Sea Brent prices of crude oil went to a low of 49% while the Russian currency fell by 49.05% at the same time. The situation is critical and the World Bank has often made recommendations asking Russia to diversify its economy to avoid collapse because for every one dollar decline in the price of oil Russia loses approximately $2 billion in terms of income.
The Colombian Peso
Columbia is one the countries with the highest oil dependency in the Western hemisphere and South America. The oil and gas exports from Columbia make up 45% of all the exports. These strong influential ties make the Columbian peso highly susceptible to any price swings in oil and this affects inflation and commodity volatility. Like Russia, Canada, and other nations that heavily rely on oil Columbia is trying to diversify its economy and manpower so as to make it one of the emerging market economies getting into a developed state. However, this diversification is yet to take time because there is a need to realign education and resource allocation. The peso has gone down by 37.86% since the oil and gas prices started declining in 2014.
The Norwegian Krone
Oil and gas are the major determining factor of Norway’s high than average GDP per capita and GDP. The advance of the nation’s economy has been propelled by a non-disrupted tapping of the nation’s rich oil reserves. The petroleum industry in Norway is one of the most important sectors in the nation’s industries because it accounts for 21.5% of the nation’s GDP, which is 48.9% of the total exports of oil. However, due to low oil prices Norway’s Krone has declined by 25.69% since 2014.
The Brazilian Real
The Brazilian Real reached an all-time low compared to the US dollar because of the decline in commodity prices, which has led to the weakening of the South American economy. Brazil’s Petrobras – the major petroleum company – has been crippled by scandals of corruption and declining oil prices. The nation hoped that the hosting of the 2016 Olympics would energize the nation’s economy. However, problems associated with lack of diversity, poor infrastructure, and over-reliance on commodity production may continue to make the nation weak economically. Even though the nation has a small portion of its economy supported by oil when compared to other nations with Petrocurrencies the decline in commodity prices such as grains and metals have made the Real to go down, and there has been a 42.8% decline since 2014.
Venezuela is currently in a chaotic state and the nation is experiencing a high rate of inflation (60%), a shortage of commodities, and a slow growth in the economy. Venezuela is among the major producers of oil in South America and the foreign exchange of the currency to the dollar has gone down since early 2015. The oil and gas price problem has been compounded by the emergent challenges such as the mismanagement of the economy and a failed exchange system that has led to a decline in the nation’s economic growth. The Bolivar is also overvalued and its complex multi-layered system worsens the country’s economic and currency stability. The multi-layered system of exchange offers differing exchange rates to different people and this makes it vulnerable to abuse, and it causes instability.
Argentina has had a positive trade balance for about three years now and this is perhaps the reason why the Argentine peso has remained stable as well as its exchange rate. However, its value against the dollar is still going low. The influence of the country’s economic growth on the exchange rate is at 7.7%. But as the prices of oil have been going low, the decline has negatively affected the nation’s development records. As economic growth goes down around the globe among major economies such as China, the nation finds itself in a difficult position because it has to cut its exports as the demand for petroleum products decline.