Oil Price Plunge: A Boon or Bane for the Global Economy?, 8 DEC

 Oil Price Plunge: A Boon or Bane for the Global Economy?

Oil prices have plummeted to a five-month low, a development not driven by economic fragility but a record oil supply, predominantly from the United States. This trend is stirring discussions among economists and analysts on its potential impact on the global economy. The world’s oil consumption, buoyed by the US’s expansion and China’s economic rebound, is at a peak of approximately 102.5 million barrels per day, according to Sankey Research. Saudi Arabia’s decision to reduce production, ironically, intensifies the oversupply, causing the OPEC leader to cede market share to countries such as the US and Iran.

A Boon for Corporate Costs and Consumers

The slide in oil prices is perceived as a positive shift for corporate expenses, with expectations of decreased shipping and other fuel-related costs. For American consumers, the average gasoline price has dipped to $3.20 per gallon — the lowest since December 30 — potentially amplifying their spending power. The reduced fuel costs also have political implications in the US, particularly as the country nears the 2024 election.

Falling Oil Prices and the ‘Goldilocks Narrative’

Analysts suggest that the ongoing trend of decreasing oil prices contributes to a ‘Goldilocks narrative’ that anticipates a relaxation of inflationary pressures. This disinflationary trend could lead to consumer price stabilization in the forthcoming year. If inflation rates recede to around 2% in 2024, it is believed that the Federal Reserve may have the chance to lower interest rates aggressively, even if the economy does not exhibit significant weakness, potentially leading to a soft landing scenario.

The OPEC Conundrum

Last week, OPEC+ announced extensions to voluntary production cuts for early 2024. The oil market in 2023 has been swayed by the competing forces of suppressed macroeconomic demand and OPEC’s strategic production cuts intended to bolster prices. While previous measures witnessed Brent Crude futures nearing the $100 mark in late September, a subsequent 20% price drop over two months indicates a more intricate scenario, with OPEC+’s recent announcement seemingly incapable of reversing the downward trend. Though countries like Saudi Arabia, Russia, the UAE, and Iraq have pledged substantial output reductions, skepticism persists about the practical implementation of these cuts, especially by nations heavily reliant on oil and gas exports like Angola.

https://bnn.network/world/us/oil-price-plunge-a-boon-or-bane-for-the-global-economy/