Tags: oil | OPEC | prices | US

FT: Collapsing Oil Prices Are Like an Early Christmas for the Global Economy

By    |   Wednesday, 15 October 2014 12:35 PM

There are both winners and losers from the huge plunge in crude oil prices. By The Financial Times' reckoning, oil at $80 per barrel would have the effect of a quantitative easing (QE) program on a global scale.

"Losers are producers, countries and governments," The Times declared.

It estimated oil at $80 per barrel would cost OPEC countries approximately $200 billion. "And for the U.S., if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the U.S. shale revolution."

But the world economy in general could get the equivalent of a QE stimulus break with sharply lower oil, The Times reported. It estimated such a decline could generate a global daily windfall of $1.8 billion, or about $660 billion annually.

"Tracking this into gasoline prices, in the U.S., where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in OPEC countries, who already pay little for fuel."

The Times attributed the collapse of oil prices to a range of factors, including a weak global economy that has put a lid on energy demand and surging U.S. production.

"Production is getting less costly every year and break-even costs are plummeting to much lower levels than commonly believed, certainly lower than $75 per barrel."

Saudi billionaire investor Prince Alwaleed bin Talal al-Saud wrote in an open letter to government ministers that current low oil prices could be a "catastrophe" because his country is 90 percent dependent on oil revenues, The Times reported.

According to the International Monetary Fund, Saudi Arabia needed an oil price of $89 a barrel in 2013 to balance its budget, up from $78 a barrel in 2012.

"But Riyadh's regional political rivals, such as Iran and Iraq, as well as other OPEC members such as Venezuela, have much higher fiscal break-evens," The Times said.

November crude futures settled at $83.10 a barrel Thursday.

Lower oil prices could be a double-edged sword, even in the U.S, The Associated Press warned.

"Problem is, two factors behind the oil-price drop — a weaker global economy and a stronger dollar — could hurt the U.S. economy by reducing exports, employment and spending. And all that, in turn, could outweigh the economic benefit of cheaper fuel," the AP reported.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Finance
There are both winners and losers from the huge plunge in crude oil prices. By The Financial Times' reckoning, oil at $80 per barrel would have the effect of a quantitative easing (QE) program on a global scale.
oil, OPEC, prices, US
396
2014-35-15
Wednesday, 15 October 2014 12:35 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved