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Falling oil prices could derail global growth

LONDON -- Oil is sometimes called the "lifeblood of an economy" and the fall of crude oil prices can work positively for importing countries such as Japan, European nations and China by reducing burdens on households and companies through lower electricity bills and gas prices, among other benefits. However, global stock markets now fear that the massive amount of oil money having been invested by oil producers into developed economies is being pulled out, and stock prices have been falling since the New Year. The negative sides of cheap oil, such as energy-related businesses suffering downturns, are becoming key factors in the global economy.

    According to the Financial Times, at least 19 billion U.S. dollars' worth of oil money was withdrawn from investment firms worldwide and transferred back to oil producers in the July-September quarter of 2015. Oil countries are suffering serious fund shortages after falling crude oil prices dealt a huge blow to state finances. When oil producers were gaining from high oil prices, they invested profits from oil in stocks and government bonds of developed countries via their government funds called "sovereign wealth funds." But now, they have no choice but to withdraw the invested capital to supplement make up for their own fund shortages.

    Furthermore, energy-related companies in large economies such as the United States and Britain have been announcing plans to cut projects and jobs. Oil giant Royal Dutch Shell has announced that it will cut investment planned for 2016 by 2 billion dollars. In addition, American oil company Chevron Corp. plans to cut jobs by about 10 percent with its CEO John Watson saying that the move was to prepare for the low prices of crude oil.

    The oil industry in the U.S. grew rapidly from the late 2000s thanks to the shale oil revolution. With declining profits caused by plunging oil prices, however, the number of oil rigs in the U.S. fell from 1,862 in 2014 to 760 in November of last year. If investment is slashed in a short period of time, it will have a large effect on oil-related industries.

    When the International Monetary Fund (IMF) lowered its global growth forecast for the year 2016 on Jan. 19, IMF Economic Counsellor and Director of Research Maurice Obstfeld pointed out that unless the world economy successfully manages key challenges, economic growth could stumble. (By Takayuki Sakai, Europe General Bureau)

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