Report: Oil Boom Is A $1.1 Trillion A Year Stimulus Package
The world economy is getting another major stimulus, but not from governments. Booming oil production, particularly from the U.S., will boost global economies by as much as $1.1 trillion due to lower fuel and commodity costs, according to a study by Citigroup Inc.
Brent crude oil prices closed below $84 per barrel yesterday — more than 20 percent below the average price for the last three years, reports Bloomberg. This has saved consumers $1.8 billion a day and given companies more cash to spend or invest in other projects.
“It is a big chunk of stimulus,” Seth Kleinman, who heads Citigroup’s European energy research, told Bloomberg. “The macro economic analysis of higher oil prices was always that it is essentially a wealth transfer from leveraged spending U.S. consumers to saving Middle East sovereigns, so ultimately it reduces the global velocity of money significantly and it’s a net drag. Now a price fall reverses that.”
Savings from lower fuel costs could reach $1.1 trillion a year, according to Citigroup. Crude oil prices could slide even further if OPEC does nothing to cut its own production to buoy oil prices. But right now Saudi Arabia, OPEC’s largest producer, is hinting it might let oil prices slide in the near-term.
“A reduction in oil prices also results in a reduction in prices across commodities, starting with natural gas, but also including copper, steel, and agriculture,” Citigroup head Ed Morse told Bloomberg. “All commodities are energy intensive to one degree or another.”
Sources close to the Saudis told Reuters the country may not cut production on fears that other OPEC nations will not follow suit. Saudi Arabia may also be letting oil prices slide to discourage companies from investing more in extracting U.S. shale oil and natural gas — a major contributor to falling oil prices.
Reuters reports the Saudis could “accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.” The idea is that lower oil prices “will be necessary to pave the way for higher revenue in the medium term.”
As oil production booms, gasoline prices across the U.S. have plummeted to three-year lows. The average national gasoline price hit $3.16 on Thursday, well below the average price of $3.36 during the same time last year.
Gas prices are predicted to fall even further this winter and into 2015, according to the U.S. Energy Information Administration. Government energy analysts say that “U.S. regular gasoline retail prices are projected to continue to decline to an average of $3.14/gal in December.” Prices are expected “to average $3.45/gal in 2014 and $3.38/gal in 2015.”
“Cheaper oil is an advantage for both consumers as well as industrial and manufacturing operations, especially as winter approaches,” analyst Myrto Sokou at Sucden Financial, told Bloomberg.
The Paris-based International Energy Agency is projecting falling oil demand for this year on weaker demand from pessimistic projections of economic growth. But demand should improve in 2015 as economic prospects improve, says IEA.
But as demand is falling for crude oil, production is booming. IEA data shows the global oil supply increased by 910,000 barrels per day in September. Total global oil production increased to 93.8 million barrels per day for that month.
Absent OPEC supply cut-backs, weak demand and growing supply should mean relatively low crude oil prices going into next year.
Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact firstname.lastname@example.org.
Top 6 on BarbWire.com
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse.