The sharp and sudden drop in the price of crude oil over the last few months caught many market participants by surprise. This decline has broad impacts for the economy and, more specifically, the bond market. As measured by the price of WTI (West Texas Intermediate), the price of oil has fallen almost 28%, from $102.90 per barrel on June 25th to $74.21 per barrel on November 14th. The effects of the price decline are far-reaching:
U.S. Economy – Much has been made in recent years of the resurgence in U.S. oil production, which has been driven by large-scale discoveries and made more efficient by improved technology. A concern has emerged as to whether the price decline will slow production levels and hurt economic growth, particularly in the oil producing regions of Texas and the Upper Midwest. Lorenzo Simonelli, an executive from General Electric’s Oil and Gas division (which supplies drilling equipment), claims the price decline has yet to slow activity. “The projects so far are still viable,” he said, speaking last week at an event in Brazil. Even if production were to slow, however, investment in oil and gas represents less than 1% of U.S. GDP, according to Barclays. The larger impact of lower oil prices is a positive one and relates directly to U.S. consumers. Americans spend roughly $1 billion each day on gasoline, says Tom Kloza, global head of energy at the Oil Price Information Service, and the decline in costs will save Americans $8.4 billion in November and December compared to the same months in 2013. If prices were to stay at these levels, it would result in $400 in yearly savings per household. This extra cash would add nearly a half a percentage point to fourth-quarter GDP growth and generate $70 billion in additional consumer spending next year, says Barclays. On net, the positives far outweigh the negatives from a domestic economic perspective.
******
The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
No comments:
Post a Comment