Tags: Feldstein | low | oil prices | crude

Harvard's Feldstein: US Benefits From Low Oil Prices; Venezuela, Iran, Russia Suffer

By    |   Wednesday, 26 November 2014 04:30 PM

U.S. oil prices dropped to a four-year low Wednesday, as market participants expect a continuation of sluggish demand and bountiful supply.

January WTI crude futures settled at $73.69 a barrel Wednesday on the Nymex, after touching $73.30 earlier.

Harvard economist Martin Feldstein, writing on Project Syndicate, tallies the winners and losers from low oil prices.

"The low price of oil is good news for the United States economy, because it implies higher real incomes for American consumers," he says. "For the same reason, the lower price also gives a boost to aggregate demand in Europe, Asia, and other oil-importing regions."

As for the other side, "the big losers include several countries that are not friends of the U.S. and its allies, such as Venezuela, Iran, and Russia," Feldstein writes. "These countries are heavily dependent on their oil revenue to support their governments’ spending."

Interestingly enough, he doesn't see much pain for Saudi Arabia and other Persian Gulf oil exporters. "Their cost of extracting oil is extremely low," Feldstein writes.

"Second, their enormous financial reserves allow them to finance their domestic and international activities for an extended period of time."

San Diego money manager Bill Gunderson also agrees that cheaper oil is good news for the economy.

Lower oil prices mean lower gasoline prices, he notes on MarketWatch. "This puts more discretionary-spending money into the hands of consumers." And retail sales rose 0.3 percent in October.

"The U.S. economy is greatly dependent on the U.S. consumer. A healthy consumer translates into healthy economic growth," Gunderson writes. Consumer spending accounts for about 70 percent of gross domestic product.

Meanwhile, Tom Kloza, founder of Oil Price Information Services, says that unless OPEC can come up with a substantive agreement to boost prices by spring, a plunge to $35 a barrel is possible next year.

That price "is a possibility if they don't get an agreement next spring because that's when the oil [supply] really starts to build, and you can have 1 billion barrels of oil with really no place to put it," he told CNBC.

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Harvard economist Martin Feldstein says "the low price of oil is good news for the United States economy, because it implies higher real incomes for American consumers."
Feldstein, low, oil prices, crude
Wednesday, 26 November 2014 04:30 PM
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