Tags: McDonald | oil | drop | economy

Oil Expert McDonald: Oil Price Drop Might Wreak Havoc on Economy

By    |   Friday, 01 May 2015 07:40 AM

Many economists say the 45 percent plunge in oil prices since late June will be good for the economy, leaving more money in consumers' pockets to spend on things other than gasoline.

But Michael McDonald of Oilprice.com isn't so sure.

"Damage to the economy from the fall in oil has been pretty minimal so far," he writes. "Indeed, the price cut in home heating oil and gasoline has probably outweighed the damage from lower oil prices, so far. Unfortunately, this situation may not last."

And why is that?

"Analysts are starting to look beyond the boost to the economy from low oil prices and see the damage that is being done by worker layoffs, slowing business and falling home prices in oil-producing states," McDonald says.

"Indeed, one recent estimate suggested that up to four jobs could ultimately disappear for every one job lost in the oil sector."

To be sure, U.S. oil prices already have rebounded 41 percent from last month's six-year low of $42.03 a barrel.

"There is little doubt that as oil prices fall, some people working in that sector will lose their jobs. What is less clear is the impact those job losses will have on other sectors of the economy. Since one person’s spending is another person’s income, as people lose their jobs in the oil patch, that should mean less spending at the local grocery store, restaurants, etc."

And ace energy entrepreneur T. Boone Pickens thinks the party is just getting started. He predicts oil prices will keep rising to $70 by year-end and $90 to $100 in the next 12 to 18 months.

"You are now at record inventories," he tells CNBC. "A year from now you are moving toward record low inventories." U.S. inventories stood at 1.93 billion barrels as of April 17.

Meanwhile, Steve Forbes, editor-in-chief of Forbes Media, says there's a real risk of Iran attempting a takeover of Saudi oilfields.

"It doesn't take a great military theorist to see that Iran is applying a pincer movement against Saudi Arabia," he writes on Forbes.com.

Iran "now has the means to make a play for control of the immense oilfields of Saudi Arabia, Kuwait and, all too obviously, Iraq, where its proxy militias are gaining strength," Forbes notes.

"Most of its [Saudi Arabia's] oil assets are in an area of the kingdom in which Shiites are the distinct majority. Iran's Shiite mullahs figure this is territory ripe for Iranian suzerainty and feel they have nothing to fear from Saudi ground forces," he argues.

"While the world focuses on U.S./Iran nuclear negotiations, the mullahs — and Russian President Vladimir Putin, [who is cozying up to the rogue nation] — have their eyes on more immediate and immensely more juicy prey" than Iraq, where Iran already is asserting control. Forbes says.

"They believe, despite the deployment of U.S. Navy vessels leading Iran to turn back an Iranian naval convoy last week, that Obama will do nothing effective."
And this ominously "leads to the question: what will Israel be forced to do to secure itself–and the civilized world?" Forbes explains.

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Many economists say the 45 percent plunge in oil prices since late June will be good for the economy, leaving more money in consumers' pockets to spend on things other than gasoline.
McDonald, oil, drop, economy
Friday, 01 May 2015 07:40 AM
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