Introduction
Oil is one of the most vital commodity in the world market. There are countries that are oil rich and they export to the countries that do not have oil. Oil is a source of energy and fuel in most industries and homes. It powers machines and automobiles. Low oil prices affect the world’s economy in a number of ways. Oil prices affect inflation and growth thus affecting the economy in the long run (Kerstein and Garosi 4). There are direct effects on the activities and prices of the countries and companies that import and export oil. Low oil prices affect investments, trade, fiscal and monetary policy and commodity markets. The main aspects that influence and cause the prices of oil to go down, are the demand and supply and market expectations. The higher the demand for oil the higher the price. The following are some of the effects of low oil prices.
Reduced demand of oil.When the prices of oil reduce, then the demand of oil goes down because people can get oil for a low price (Mansharamani 23). When the prices of oil are high people switch to alternative fuels likerenewable and clean energy.
OPEC Countries reduce production.
Since the falling prices of oil put pressure on OPEC (Oil Producing and Exporting Countries), then the oil producing countries are instructed to regulate their production to enable the prices to stabilize. For example, in 2014 the prices of oil went down and all the OPEC countries agreed to keep their daily production to 30mb. This decision helped the prices of oil to stabilize because of the huge impact that oil prices have on the world financial market.
Reduced economic growth.
Most industries depend on oil as fuel. It is expected that the low oil prices will increase production but the producers will still make less money. They will make less investments. Some of them downsize and this results in a weaker economy. The customers expect that when the oil prices are lower, they will get cheaper flight tickets but the connection between price of tickets and oil prices is not a strict connection. The news that there are low oil prices is not always good news. The prices of oil will affect the stock market because the energy sector plays such a prime role in the capital markets (Matthew 6).
Reduced prices in commodity markets.
When the oil prices decrease, the prices of other commodities like natural gas also decrease. The price of natural gas will decrease in Asia and Europe. If the low prices continue, then the prices of natural gas will also continue to fall in all markets. The other commodity markets that this shift affects are agriculture and manufacturing. Since the fuel prices are going down, transportation and production of important goods like chemicals and fertilizers goes down.

Reduced Inflation.
The drop in oil prices will affect the fiscal and monetary policy because it has a consequence on inflation of the world economy. There will be countries that have low and negative inflation rates. When this happens, the central bank will change its policies. This will reduce the external inflationary and fiscal pressures. When the oil prices are very low, they will weaken the external and fiscal positions. This in turn will decrease the economic activity of the companies that export oil.
Conclusion
In conclusion, oil price is very important in stabilizing the world economy. Oil prices affect many sectors like the energy manufacturing and financial sectors. Low oil prices cause different shifts in the world. The effects are reduced demand of oil in different markets reduced inflation, reduced oil production in OPEC Countries reduced inflation and price in commodity markets. There are two factors that cause the reduction of price of oil. These are forces of demand and supply and the expectations of the markets.