My question for you all today is fairly straightforward. Do you think the recent low oil prices are helping or hurting the global economy? When prices are low, oil producing countries are hurt and sometimes oil companies go out of business. But at the same time, oil and gas products are now cheaper for consumers, which leaves them with more money in their pocket to spend or invest on other things. One might expect this to drive consumption and therefore offset any harm done on the economy. Has this been the case? Why or why not?
http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0
It is hard to quantify the net benefit or loss from lower oil prices. The United States is having a hard time competing with OPEC as they are keeping production fixed. This will really hurt states with large oil and gas production such as Texas and North Dakota.
ReplyDeleteFrom a purely investment standpoint, the price of oil has been one of the main reasons the stock market has been volatile over the year. Assuming consumers are invested in the market in some capacity their returns are definitely being hurt more than the money they are saving at the pump.
Actually, Kenny, the U.S. has ramped up oil production within the last few years and fracking is the main reason for this. Fracking now accounts for over half of the total oil extraction in the U.S. where in 2000 it was only 2%. Here's a recent article from CNN Money: http://money.cnn.com/2016/03/24/investing/fracking-shale-oil-boom/. At the moment, the U.S. is able to compete with the Middle East and we're seeing foreign oil producers taking hits, while big oil is booming in the U.S. Obviously, there's the implication of long term environmental damage, but for the time being, low gas prices mean Americans have more money in their pockets and the economy improves overall. The question is: how long can/should/will the U.S. continue this level of output and what will be the end result?
DeleteI found an article about the effect of cheaper oil on the US economy. Historically, lower prices would benefit America, but it's hurting domestic producers because much of that oil is imported. Consumer spending is rising, but still there is a tendency of consumers saving money probably because they are scared of paying off high level of debts or they aren't sure if lower prices would last.
ReplyDeleteThere's another problem: "It has contributed to the correction in global equity markets; the Standard & Poor’s 500-stock index is down 10 percent this year. And lower prices are weighing on inflation, jeopardizing the Federal Reserve’s plans to raise interest rates by about one percentage point this year." Again, cheaper oil price is linked to the Fed's decision to increase interest rates.
http://www.nytimes.com/2016/01/22/business/energy-environment/this-time-cheaper-oil-does-little-for-the-us-economy.html
We cannot generalize and simplify the answer whether lower oil price is in favor of global economy because there are too many variables. It is nearly impossible to answer that. The depth of dependence of each nation on oil has different impacts on global economy. The fact whether a nation produces oil or not is another factor talking about global economy. Saudi Arabia who produces oil and depends their government revenue on oil has extremely bad impact on their economy. However, the United States which shares common features with Saudi Arabia but has large domestic oil consumptions helps their economy because lower price of oil helps domestic consumption for citizens. Nothing is wrong about your argument, but it is nearly impossible to answer in a favor of certain side.
ReplyDeleteObviously, the significant decline in oil prices is harmful for large oil companies, and countries that are heavily reliant on oil production for their economies, but I think that this shift will remind people that renewable energy is becoming a better investment than oil. This article
ReplyDeletehttp://www.houstonchronicle.com/opinion/outlook/article/Burton-III-Dickerson-Forget-oil-prices-7212562.php
from the Houston Chronicle discusses how investment in renewable energy is growing quite rapidly, even with the recent drop in oil prices. Renewable energy stock prices tend to move up and down as oil prices do, but the sector has remained pretty steadfast in the face of this adversity. I think that the volatility and weakness in the oil sector is one of the first steps before the transition to renewable energy.