It can be hard to believe that reduced oil prices don’t mean the economy is doing well, on the contrary, it can signify that the global economy is in trouble.
According to CNN, when economies are booming a lot of oil is consumed.
Concerning the United State’s economy, this can affect us in several ways. The U.S. has trade relations with several countries such as Colombia, Brazil, and Venezuela. These countries’ economies are powered by energy exports meaning that the crash in oil prices has hurt their markets, which in return will hurt our own.
“The stock market has reacted negatively, and some of that comes down to the fact that you can see what the impact is on large energy firms,” Paul Ashworth, chief North American economist at Capital Economics in Toronto told The New York Times.
Countries that have been going through economic headwinds see the drop in oil prices as a relief such as the United States – a major producer and consumer of oil.
Texas, a big booming oil state, has experienced a rising in home foreclosure. Not only Texas but Oklahoma and Alaska are heavily reliant on oil; It brings in job opportunities and economic growth for these states. Therefore, the drop in oil prices can cancel out the benefits of cheaper oil.
What’s most surprising is the speed the prices have plummeted. Since the beginning of this new year, the benchmark crude prices have fallen more than 15 percent.
For consumers, however, this is nothing but good news. The $2 a gallon means they have the opportunity of spending the money they would usually spend at the gas pump on other things.
According to Foreign Policy, economists estimated an amounted cash stimulus of $1,800 per U.S. household thanks to the cheaper oil prices.
For Americans and the economy, the drop may be more beneficial for consumers than it is painful for energy producers.