Wednesday, September 28, 2011

Falling Oil Prices

Oil prices are continuing to fall to their lowest amounts in recent months and consumers are beginning to feel relief at the pump. Although, viewing the current prices from a historical perspective, the price of gasoline is still quite high. The lower gas prices means more money in the consumer’s pockets and, in turn, more income available to spend on other products. Gasoline prices usually follow the reduction in oil prices and recently, the national average has fallen to $3.56. The trend is expected to continue with an additional .09 in the next few weeks. Economists state that for every $1 decline in oil price, the average American consumer has an additional $3 billion to spend, save or pay down debt. Does more spending lead to a rise in the economic outlook? You would think so; however, sometimes low gas prices are linked to a weakening in the economy and should not be seen as a positive indicator of an economic recovery. As a matter of fact, experts attribute the recent drop in oil prices to several factors that include the political climate in Washington, the S$P downgrade and the debt crisis in Europe. As these factors continue without resolution, oil traders expect the demand for oil and gasoline to fall. The declines we are currently experiencing are an indication of trouble ahead and could be a sign of a pretty sick economy. Lower oil and gas prices are an automatic response to the prospect of worse times and paint a bleak economic outlook. If the trend continues, uncertainty will prevail within the American public, which will flow over into the business sector. It becomes a vicious circle: businesses will cease hiring, consumers will cease buying products, investors will cease investing in stocks, and the economy will slow down even further. As the article aptly states, “…be careful what you wish for.”

3 comments:

Smith said...

Great analysis. Is there anything the petroleum producer could do (from the supply side) to help stimulate the economy?

The Noah. said...

If higher prices mean bad economics, why are gas prices going to the 2.50-2.99 range in Texas?

jay paul said...

Congratulation for the great post. Those who come to read your article will find lots of helpful and informative tips.

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