Cheaper oil will benefit the world...for now
Oil Prices in 2014 fell to their lowest level in five years. As we enter the New Year, can we expect more of the same?
Daniel Franklin, Executive Editor at “The Economist” thinks cheap oil will stick around for the most part: “At least for a while lower prices set in. I think for the horizon of 2015 we’re looking at an adjustment to a world of cheaper oil prices and lower investment.” This is good news for consumers.
Cheaper oil means less money spent at the gas pump and on heating bills. The savings are returned to the consumer and acts as a stimulus for the economy. Franklin sees this as a boost for the World. “Overall, it’s probably good for the global economy. The benefit falls disproportionally to the rich economies who produce and consume most.” Lower oil prices should improve the US economy as well as some struggling European countries.
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So that’s the good, now here’s the bad. Low oil prices will cause some economies to suffer. “It spells trouble for oil producing countries that depend on oil for a lot of their revenue. There are certain countries: Venezuela, who is as it risk of default. Perhaps, most intriguing is Russia. Where oil comes on top of western sanctions to cause deep problems for the economy there,” says Franklin. Oil accounts for half of Russia’s exports. Already faced with a declining currency, President Vladimir Putin could see the Russian economy go from bad to worst.
Franklin predicts oil prices will eventually tick back up: “In time they tend to bounce back because investment suffers and the cycle swings right back again. Production shortages start to come through as a result of lack of investment over time.” How fast prices rise and what countries serve to benefit or suffer will be a key economic issue to watch in 2015.
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