Stocker, MarcBaffes, JohnKose, M. AyhanOhnsorge, Franziska2016-01-112016-01-112015-03https://hdl.handle.net/10986/23611This note combines and distills existing and new research to inform discussion on the topical policy issue of oil prices. Following four years of relative stability at around $105 per barrel (bbl), oil prices have declined sharply since June 2014 and are expected to remain low for a considerable period of time. The drop in prices likely marks the end of the commodity supercycle that began in the early 2000s. Since the past episodes of such sharp declines coincided with substantial fluctuations in activity and inflation, the causes and consequences of and policy responses to the recent plunge in oil prices have led to intensive debates. This paper addresses four questions at the center of these debates, with particular emphasis on emerging market and developing economies: 1) How does the recent decline in oil prices compare with previous episodes? 2) What are the causes of the sharp drop and what is the outlook for oil price? 3) What are the economic and financial consequences? 4) What are the main policy implications? The decline in oil prices will lead to significant real income shifts from oil exporters to oil importers, likely resulting in a net positive effect for global activity over the medium term. However, several factors could counteract the global growth and inflation implications of the lower oil prices. These include weak global demand and limited scope for additional monetary policy easing in many countries. The disinflationary implications of falling oil prices may be muted by sharp adjustments in currencies and effects of taxes, subsidies, and regulations on prices. Regarding fiscal policy, the loss in oil revenues for exporters will strain public finances, while savings among oil importers could help rebuild fiscal space. Lower oil prices also present a window of opportunity to implement structural reforms. These include, in particular, comprehensive and lasting reforms of fuel subsidies, as well as energy taxes more broadly.en-USCC BY 3.0 IGOEMPLOYMENTMERCHANDISECAPITAL MARKETSDURABLE GOODSNUCLEAR REACTORSOIL PRICEPRICE INCREASESOIL EQUIVALENTFOSSIL FUELSOIL MARKETSSTOCKQUALITY ENERGYWORLD OIL CONSUMPTIONMARKET DEVELOPMENTSDEFLATIONOIL SPILLSPRICE FORECASTSACTIVITIESAVERAGE PRICESOIL OUTPUTOIL SUPPLYCLEAN ENERGYGAS PRICESGASOLINEENERGY PRODUCTSFAIROIL PRICE COLLAPSEOIL EXPLORATIONPRICINGGASETHANOLBARRELS PER DAYPRICEPEAK OILDOMESTIC OILOIL CONSUMPTIONOIL PRODUCTIONINFLATIONSTABLE PRICESOILSLABOR MARKETPETROLEUMOIL PRICESLNGNATURAL GAS PRICESOIL DEMANDLIQUEFACTIONAGRICULTURAL COMMODITIESOILBARREL OILENERGY SOURCESSUBSTITUTE PRODUCTRAW MATERIALSPETROLEUM EXPORTING COUNTRIESOIL ACCOUNTSOIL COMPANIESDOMESTIC SUPPLYSURPLUSPRODUCTSOPTIONSOIL PRODUCTSCRUDE OIL PRODUCTIONEMERGING MARKETRECOVERABLE RESERVESMARKETSOIL IMPORTSAGRICULTURAL PRICESPRODUCTTAX REVENUESPRICE SUBSIDIESINVENTORIESFUEL DEMANDPRICING POLICIESINVENTORYFUELSFUEL COSTSCOMMODITY PRICETAX POLICIESPRICE CHANGEEXPENDITUREEMERGING MARKETSPRICING MECHANISMENERGY CONSUMPTIONGAS PROJECTSSUBSTITUTECLIMATE CHANGEVOLATILITYBALANCEOIL PRODUCERMARKET CONDITIONSMERCHANDISE EXPORTSUTILITIESPOWERELECTRICITYPRICE OF OILPRICE SUPPORTDEMANDAGGREGATE DEMANDPRICE STABILITYPRICE CHANGESFOSSIL FUELEXPENDITURESOIL EXPORTSPRICE FLUCTUATIONSOIL PRODUCERSFUEL PRICESCOST OF ENERGYENERGY BILLSENERGY USECONSUMPTION OF ENERGYMARKETNET OILNUCLEAR ENERGYENERGY PRICESCOFFEE PRICESENERGY PRODUCTIONCRUDE OIL PRICENATURAL GASMARKET SHAREFEEDSTOCKFINANCIAL MARKETSUGARCANESTOCKSOIL EXPORTERSDOMESTIC OIL PRODUCTIONINVESTMENTNITROGENCOALFINANCIAL MARKETSSUPPLYCRUDE OILFUELOIL SHOCKSDRILLINGPRICES OF ENERGYAVAILABILITYOIL PRICE SPIKEINVESTMENTSDOMESTIC PETROLEUMRENEWABLE ENERGYSUPPLIERSPRICE SPIKESLABOR MARKETSDIESELCOMMODITY PRICESOIL INDUSTRYENERGY COSTSFOSSILPRICESAPPROACHELECTRICAL POWERENERGYWorking PaperWorld Bank10.1596/23611