Declining oil prices bad for economy?

Economics isn’t my specialty. Indeed, I don’t have any specialties.

I’m trying to understand why some economists now think the declining price of oil and the concurrent drop in gasoline prices is somehow bad for the recovering U.S. economy.

http://www.msn.com/en-us/money/other/is-dollar40-oil-coming/ar-BBgNjHn

Does anyone else remember when crude prices were skyrocketing from, say, $40 per barrel to more than $100? The stock market went bonkers. Investment accounts were drained of billions of dollars.

However, the oil industry made a gigantic comeback. NPR this morning did a story from West Texas detailing how pump jacks that once stood like dinosaurs have jumped back to life and are pulling out of the ground.

A lot of other factors have contributed to the nation’s economic rebound.

Moreover, a lot of factors are contributing to the glut of oil that’s driving its price downward.

Now we hear that the economic recovery might be jeopardized by the plunge in oil prices.

The oil boom might fizzle out at the production end, but what about the increase in disposable income for motorists who aren’t pouring as much money into their fuel tanks?

Will they be able to spend more of that income on other essential — and non-essential — items?

Economics can be a complicated issue. This oil price up-down cycle has me confused.

 

One thought on “Declining oil prices bad for economy?”

  1. I know a little bit about oil prices and oil products having worked at a refinery for 36 years. I know for a fact that the diesel that is being sold today is cheaper to produce than unlead gasoline. There are staggering profits being made on diesel. Have you noticed that the price of diesel is not falling at the same rate as gasoline? Both products are made from crude oil.

    But if the price of diesel was to be adjusted to reflect the lower price of crude oil, it still would not affect the economy favorably. Airlines, trucking, and railroads whose operating costs would be lower have no obligation to return those profits to anyone other than the stockholders. Their rates would remain basically the same.

    I had it pointed out to me the other day that when oil prices go back up, and they will, oil production will be stepped up around here. They are paying really good money to the workers in the oil patch. They will have plenty of money and merchants will not mind charging a little more for groceries and landlords will get higher rents. The people who are not involved will be paying more. That’s not good for the economy.

    Who knows which is better for our economy? Low or high oil prices? I think that anyone who can predict it accurately is pretty smart.

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