Dáil Éireann Debate, Wednesday - 13 May 2020
60. Deputy Michael McGrath asked the Minister for Finance the potential positive and negative impact of the decision by Saudi Arabia to increase oil supply and as a result reduce oil prices on the economy; and if he will make a statement on the matter. [4290/20]
View answerIreland relies on importing fuel to meet its energy needs and this leaves the Irish economy particularly exposed to the uncertainty of international oil price movements. However, as an energy importer Ireland has benefitted from the steep fall in oil prices since 2014, from approximately $100 in 2014 to $64 in 2019.
Nonetheless, in recent months, there has been considerable volatility in oil prices, largely arising from geopolitical tensions and the uncertainty surrounding the global economic impact of Covid-19. To date in May 2020, the price of Brent crude oil had decreased by around 60 per cent, to c. $29, since May 2019. Oil prices were expected to fall this year and the current levels are broadly in-line with my Department’s most recent economic forecasts published in Stability Programme Update 2020.
Generally speaking, decreases in oil prices should have a positive impact on economy’s growth prospects through improving consumer spending power and corporate profitability. All things equal, falling oil prices reduce consumer price inflation resulting in higher real wage growth and higher disposable incomes. My Department is currently forecasting HICP consumer price inflation of -0.6 per cent on the back of falling oil prices and suppressed demand due to Covid-19. Falling oil prices should also result in lower petrol and diesel prices for motoring purposes. However, given the recent developments regarding the spread of coronavirus and the resulting uncertainty surrounding both the domestic and global economy, it is uncertain whether the usual upsides resulting from the fall in oil prices, such as higher consumer spending, will materialise.
Of course, the decision to increase oil supply could easily be reversed resulting in an increase in oil prices. This in turn could result in negative terms of trade effects, with higher import costs reducing purchasing power and in turn weighing on domestic demand. The terms of trade deterioration can also result in a loss of competitiveness for the economy, particularly relative to those trading partners with less reliance on oil.
While the economy faces the greatest challenge since the financial crisis, the prudent economic and fiscal policies implemented over recent years have placed Ireland in a stronger position to weather any shock which may materialise including an oil price shock.
