The latest Bloomberg Businessweek highlights some interesting data about recent oil production.
Oil is in the middle of one of its steepest selloffs since the financial crisis, with prices on the international market falling 18 percent since mid-June, to $94 a barrel on Sept. 30. There are two explanations—not enough demand or too much supply. Supporting the weak demand argument: a stagnant economy in Europe, slower growth in China, and flat gasoline consumption in the U.S. According to the International Energy Agency, in 2014 world demand for oil will grow only 1.5 percent.
But the bigger factor appears to be surging global oil production, which outpaced demand last year and is shaping up to do so again in 2014. …
… Although that might not be good news for oil producers, it’s great for consumers and the global economy. A report by Andrew Kenningham, senior global economist at Capital Economics, attempts to gauge the difficult-to-measure global lift from lower oil prices. “A $10 fall in the price of oil transfers the equivalent of 0.5 percent of world GDP from oil producers to oil consumers,” he writes. That in turn will have a knock-on effect on global consumption, because consumers tend to spend more of their income than businesses. Assuming consumers spend half their savings from cheaper oil, Kenningham continues, “a $10 fall in the oil price would boost global demand [for goods and services] by 0.2 to 0.3 percent.”
By lowering gasoline bills, cheaper oil prices could potentially increase purchasing power for U.S. consumers in time for the holiday sales season. “That money is going to be moving into cash registers this fall,” says David Rosenberg, chief economist at Canadian investment firm Gluskin Sheff (GS:CN). “Cheap gasoline acts like a tax cut that will flow through the U.S. economy in a big way. This couldn’t have come at a better time.”
Cutting energy costs leads to benefits for consumers? Someone should tell North Carolina officials.
