Although the lower fuel prices might look like good news at first sight, and it's definitely great news for the industries that are heavily dependent on oil and gas, in the larger picture it poses a thread of deflation and stagnation. The markets are already nervous, and in wait for the even lower prices, customers are postponing the bigger purchases. Investment plans are getting delayed, and this brings lower demand as a whole. Which in turn brings lower prices, and thus comes the danger of stagnation. Japan, the world's third largest economy, is a fine example in that respect.
Energy usually isn't a trigger of deflation, which is why those who measure such things usually produce an inflation index that excludes energy and food. After all, you will certainly put off buying a house and maybe a car if you know they'll be cheaper in a year, you won't put off filling up your tank or buying food for dinner.
This isn't about postponing the filling of your tank. The connection between fuel prices and virtually all aspects of the economy is systematic, not incidental, and often indirect, and rather counter-intuitive - from food industries to heavy industry, to utility services, even to real estate, virtually all industries are affected in one way or another. Falling fuel prices impact the macroeconomic situation in a very tangible way:
"...For producers, cheaper prices mean either less profits or even losses, which leads to a slower national economic expansion. In other words, right now oil supplies are outstripping demand and causing commodity prices to fall. At the point in time they would dip below the point to where producers could profit, they most likely stop digging - and stop hiring, or even start firing. That’s economics 101. But, in keeping with the scholastic parallels here, the economic and political curves won’t immediately intersect." (source)
And,
"While there are clear cost savings for American drivers, the situation is
( ... )
Really? Then all these guys must be wrong and you must be right:
"The most immediate impact of the fall in oil prices is to increase real incomes of everyone in Europe. However, the lower oil prices have also exacerbated the potential danger that Europe could experience deflation, which would inhibit economic activity by encouraging people to postpone spending, and it would also increase the real burden of debt." (source)
"Lower energy prices should stick around, boosting growth and risky assets like stocks but increasing the risks of deflation. ... On balance, lower oil prices are a boon, though a boon with small-probability but perhaps high-impact risks." (source)
"Investors are worried about deflation, too, as evidenced in this week's volatile financial markets, as the Dow Jones Industrial Average tumbled as much as 239 points Tuesday after dropping 350 points in afternoon trading Monday. ... For most consumers, it doesn’t make intuitive sense that economists should fret sliding
( ... )
The US increased their oil production by 16% last year, 516 million tons. This made America the 3rd largest oil producer in the world, after the Saudis and Russia.
I don't know how the metrics are determined (such as yearly cycle dates versus monthly, etc) but I was pretty surprised to have recently read that the United States actually is the world's largest producer of oil. That's according to the International Energy Agency (IEA). This news struck me as ironic, because when President Obama was running in 2008, and 2012, his Republicans opponents were making some outrageous predictions based on Obama's environmental and energy policies*: Newt Gingrich predicted an Obama 2nd term would lead to gas prices of $10.00 dollars a gallon. And Senator Mike Lee (R- Utah) addressed the Senate, “predicted that if Obama was reelected gas would cost $5.45 per gallon by the start 2015. Lee said that gas prices would rise 5 cents for every month Obama was in office, ultimately reaching $6.60 per gallon.” Today's gas price are around $2.25 per
( ... )
The fracking boom has changed the balance of powers in the world of energetics. Saudi Arabia is trying various tricks against the US in their attempt to cut the fracking euphoria in its cradle, and this is bound to cause trouble on the trade markets.
Who needs weak oil?politic_zoneAugust 10 2015, 02:25:08 UTC
It is obvious - low oil prices, weak Russia, strong usd. It should be noted, that the previous Saud king supported so much the US, that declared it would be no problem for if the price was 20-40. Very close friendship...
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"...For producers, cheaper prices mean either less profits or even losses, which leads to a slower national economic expansion. In other words, right now oil supplies are outstripping demand and causing commodity prices to fall. At the point in time they would dip below the point to where producers could profit, they most likely stop digging - and stop hiring, or even start firing. That’s economics 101. But, in keeping with the scholastic parallels here, the economic and political curves won’t immediately intersect." (source)
And,
"While there are clear cost savings for American drivers, the situation is ( ... )
Reply
Really? Then all these guys must be wrong and you must be right:
"The most immediate impact of the fall in oil prices is to increase real incomes of everyone in Europe. However, the lower oil prices have also exacerbated the potential danger that Europe could experience deflation, which would inhibit economic activity by encouraging people to postpone spending, and it would also increase the real burden of debt." (source)
"Lower energy prices should stick around, boosting growth and risky assets like stocks but increasing the risks of deflation. ... On balance, lower oil prices are a boon, though a boon with small-probability but perhaps high-impact risks." (source)
"Investors are worried about deflation, too, as evidenced in this week's volatile financial markets, as the Dow Jones Industrial Average tumbled as much as 239 points Tuesday after dropping 350 points in afternoon trading Monday. ... For most consumers, it doesn’t make intuitive sense that economists should fret sliding ( ... )
Reply
I don't know how the metrics are determined (such as yearly cycle dates versus monthly, etc) but I was pretty surprised to have recently read that the United States actually is the world's largest producer of oil. That's according to the International Energy Agency (IEA). This news struck me as ironic, because when President Obama was running in 2008, and 2012, his Republicans opponents were making some outrageous predictions based on Obama's environmental and energy policies*: Newt Gingrich predicted an Obama 2nd term would lead to gas prices of $10.00 dollars a gallon. And Senator Mike Lee (R- Utah) addressed the Senate, “predicted that if Obama was reelected gas would cost $5.45 per gallon by the start 2015. Lee said that gas prices would rise 5 cents for every month Obama was in office, ultimately reaching $6.60 per gallon.” Today's gas price are around $2.25 per ( ... )
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Assuming that the entire US economy revolves around Russia's fate, sounds too tinfoil-hatt-y.
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