Oil prices have plunged 55 percent since late June, but New York University economist Nouriel Roubini doesn't expect the slump to last too long.
He says Saudi Arabia's strategy of refraining from production cuts makes sense. "Their behavior is like a typical oligopoly using predatory pricing," he said at a conference Tuesday,
Fortune reports.
"If you keep prices low for long enough, you get rid of those who are high marginal-cost producers, whether it's shale gas and oil, or Russia, or Venezuela, you name it." Experts say U.S. shale oil production is uneconomical below $60 to $70 a barrel.
"You . . . continue to increase capacity," Roubini said of Saudi Arabia. "That's going to lead to everybody else to underinvest in increasing capacity."
The result?
"In the short term, you have lower oil prices, but in the medium term you've flushed out your competition," he explained. "You take the pain for the next 12 to 18 months, but the result is higher prices and market share down the road."
The price will have mixed effects on economies, says Bill Greiner, chief investment strategist of Mariner Holdings.
"The economic growth of nations consuming oil will benefit mightily at the expense of oil-producing nations," he wrote in an article for
Forbes.
The effects will be mixed within some economies too, Greiner noted.
"Segments of our domestic economy will struggle. Capital spending growth will be stunted. Segments of the high-yield fixed income market will struggle," he explained.
But consumers will benefit, as falling gasoline prices boost their spending power. U.S. families on average spend 4 percent of their income on gas, Greiner notes.
"The bonus of falling gasoline prices (and heating oil, and natural gas) should provide stimulus to overall consumption patterns in 2015."
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