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The downside to lower oil prices

posted 8 Jun 2012, 14:15 by Mpelembe Admin   [ updated 8 Jun 2012, 14:15 ]

Lower oil prices may be a boon to consumers in the short term but the price drop signals greater underlying problems with the global economy.

USA-OIL PRICE SLIDE - Crude oil prices are on a slippery slide...down for five out of the last six weeks in the U.S.


Brent North Sea crude, traded in London, and West Texas, traded at the NYMEX, are both down about 20% from April 30th.

And it looks as though the trend will continue.


Craig Dismuke, Chief Economic Strategist at Vining Sparks:

CRAIG DISMUKE, CHIEF ECONOMIC STRATEGIST, VINING SPARKS SAYING:

"Every 2-1/2 cent decrease in gasoline prices is about a $2-1/2 billion dollar increase in consumption power for U.S. consumers if it's held over the course of a year."


Good news for U.S. consumers at a time when they are taking on more debt, and facing a shaky jobs market, but not so good for the energy industry.


Nariman Behravesh, chief economist at IHS:

NARIMAN BEHRAVESH, CHIEF ECONOMIST, IHS  SAYING:

"There are parts of the U.S., Louisiana for example, Texas, Alaska, these are exporting oil producing parts of the country so if oil prices come down those particular states tend to suffer."


Currently, unemployment rates in these oil producing states are lower than the national rate of 8.2%.


Lower oil prices also reveal a troubling reality: the global economy is slowing, both here and abroad.

CRAIG DISMUKE, CHIEF ECONOMIC STRATEGIST, VINING SPARKS SAYING:

"You have the expectation that U.S. growth will be weaker so there will be less demand, the same in China, and China right now is battling how soft is their landing going to be."


NARIMAN BEHRAVESH, CHIEF ECONOMIST, IHS SAYING:

"Most people didn't expect Chinese growth to be so weak so that's made a lot of businesses take a bit of a pause if you will in terms of their hiring. They aren't cutting jobs, they are just hiring more slowly. They are being a little more careful and I think that may pass as the year progresses in particular vis-a-vis China. We know China's already enacting a fair amount of stimulus so Chinese growth could pick up."

But even so, the European debt crisis could offset any of that optimism, keeping demand in check and prices lower.


Jill Bennett, Reuters

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