Drop in oil prices could help consumers during holidays
FRANKFURT, Germany — Holiday shoppers should enjoy more spending power thanks to the recent sharp drop in oil prices, though cheaper energy could also weigh on the U.S. economy by dampening investment in shale oil production.
The swift and steep drop in oil prices has been the talk of Wall Street for several weeks and is also good news for 30 million American travelers as they head into the Thanksgiving holiday.
But the the dramatic decline cuts both ways, with several energy firms big and small seeing their stock prices fall even as President Donald Trump cheers the lowest oil prices in more than a year.
On Wednesday morning, the president tweeted:
“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!”
“It’s all supply, that is the issue, said Nancy Tengler, chief investment officer at Heartland Financial. “The U.S. is producing 11.5 million barrels a day. We are largest producer in the world. There’s just more supply than demand currently. If Saudi Arabia keeps pumping and exemptions to place, prices stay low.”
Several small oil production companies have been shellacked by the commodity’s price decline, with share prices dropping nearly 50 percent in recent days.
While the fall in oil prices doesn’t yet match the 2014-2016 slump to $26 per barrel, the current decline should soon make itself felt through the global economy.
The international crude benchmark, Brent, has fallen Iran stay are going in to under $65 per barrel from a four-year high in early October over $86, and U.S. crude has dropped below $55 a barrel.
The magic number $50 per barrel.
“We are clearly in the danger zone,” said Frank Verrastro, a global energy expert at the Center for Strategic and International Studies. “For U.S. producers, sustained prices below $50 would undoubtedly be problematic for all but the most efficient operators.”
Retailers in the U.S., who depend on heavy Christmas is spending, should see a boost as lower gasoline prices give consumers more spare cash to spend on gifts.
The average price of a gallon of regular gasoline in the U.S. has fallen to $2.60 from $2.85 a month ago. So the driver of a midsize car or crossover is saving about $4 on a fill-up while drivers of bigger SUVs could save $7 to $8.
Despite the shout-out from Trump, how much credit OPEC and Saudi Arabia deserve is questionable, however. Along with the U.S. and Russia, the Saudis had boosted oil production in anticipation of sharply lower exports from Iran, due to pending U.S. sanctions. But Trump added a six-month waiver for several countries that are major consumers of Iranian oil when he imposed the sanctions on Nov. 5.
Instead of spiking, oil prices have slumped. Concerns about slowing global growth and weaker demand have also weighed on prices.
It’s likely Saudi Arabia and OPEC will take actions to raise prices. Analysts at Commerzbank expect OPEC and some nonOPEC countries to agree to a production cut of at least 1 million barrels per day at the cartel’s next meeting on Dec. 6 in Vienna.
“We see the oil market as being in a phase of exaggeration and expect a noticeable price recovery after the OPEC meeting at the latest,” the analysts wrote.
The drop in oil prices isn’t all good news for the U.S. economy, now that the nation has more than doubled its production of oil over the last decade. The price decline could lead to less investment in new rigs in oil-producing U.S. states, offsetting the overall impact on economic growth.
The Washington