What does the oil slump mean for the economy?

crude-oil-picture

The price of oil has dropped sharply since the summer of 2014, settling to a 12 year low- and it prompts many questions- Will the price of oil stay low? For how long? How will markets react to stabilize?

Perhaps most telling is the recent failure of oil cartel OPEC (Organization of Petroleum Exporting Countries) to agree on new production ceilings. This means that exporters still aren’t sure how to handle the lower prices. This is due partly to the fact that demand for crude oil has stumbled in China, as it pivots away from energy-intensive industrial growth towards a more consumption-led model of development.

It has prompted fears about the integrity of global stock indexes amidst recent turmoil; the People’s Bank of China has been consuming its reserves at a blistering pace, and has been selling dollars in an effort to increase the value of the Chinese currency.

Russia as well has also been scrambling to stabilize its economy. Ostensibly it blames the crisis on low oil prices as well as western sanctions (imposed during the annexation of Crimea) but that doesn’t do much to assuage the fears of those with falling incomes and shrinking social benefits.

The global economic climate is not lost on American investors. Some fear that the growing uncertainty along with plummeting oil prices with drastically reduce investor confidence. How the federal reserve chooses to act in the coming months will play a large part in determining the course of events.

In the meantime, it might be worth considering a road trip- I suspect it will be a long time before gas gets this cheap again.

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About BayApartmentAdvisor

Nick Myerhoff is a Bay Area apartment market specialist. He owns and operates his own multi-family real estate and assists clients and prospects with their purchases and exchanges of residential commercial real estate in the bay area.
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