Oil prices hit a five-year low Friday, and the plunge will help the U.S. economy in the short run, while hurting in the long run, Campbell Harvey, professor of international business at Duke University's Business School, told Newsmax TV
January WTI crude futures settled at $ 67.38 a barrel Wednesday on the Nymex, after hitting their nadir of $63.72 Friday. Prices have plummeted 37 percent since June 20.
"It's kind of like a tax cut" in the near term, Harvey told "MidPoint" host Ed Berliner. "You've got more money in your wallet, which is especially convenient during the holiday season. There's going to be more spending." That will lift GDP by up to 0.5 percentage point in the shorter term, Harvey says.
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The long-term damage stems from the fact that the price plunge will depress investment in the energy sector, he says.
"We've already seen the announcements of cutting back capital spending in terms of shale production and other things," Harvey notes. "That cutback is going to bite into GDP in the future."
Investment, of course, is a key element of economic growth. "When that's decreased, it decreases GDP growth, and it means that less production will be available sooner," Harvey says. "So it allows the price of oil to go back up."
Oil prices fell particularly hard Friday after OPEC failed to take any action to stem the price drop at its meeting last week. But, "the power of OPEC is just exaggerated like crazy," Harvey says.
"This is not 1973, this is not 1979," when OPEC action helped prices soar.
"It is true that they have low-cost oil production, and they do have substantial reserves, but the world is a completely different place," Harvey says. "The U.S. is a much bigger player than it's been in 40 years." U.S. oil production has jumped to its highest level in at least 31 years.
"You need to look at the world economy, the decoupling," Harvey said. U.S. economic growth is strengthening, while Europe is headed toward recession, Japan is already in one and China's growth is slowing.
"This is the reason the price is going down. Just focusing on OPEC is the wrong thing to do. There are other structural issues that are way more important," Harvey says.
He doesn't buy the argument that OPEC is conspiring to push down oil prices in an effort to put the kibosh on U.S. shale oil producers. That idea is just "bizarre," Harvey says.
"We have to look at this in the broader context not just of oil, but the entire commodities complex." Other commodities have dropped too, including copper and iron ore, he notes.
The growth slowdown overseas "has caused all of these key commodities, including oil, to decrease in value."
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