Oil prices tanking, why isn't the economy soaring?

Clearly you aren’t watching enough Fox News.

Really? Click on 6-year graph over to the right. Also, check the box to show crude prices.

They are a 12-year low even without taking account of inflation.

I was just reading an article this morning about natural gas prices trading at 16 year lows for Henry Hub. I think over all it could be a perception of oil prices being low and gas prices having fallen through the floor that “oil” prices are low.

As for why the economy hasn’t taken off is I think every one is still disbelieving that prices will stay low. In the same article I was reading they were talking about Marcellus producers buying hedges at nearly double spot for 50% of their 2016 production. There seems to be a mixed belief that either low prices are here to stay or Saudi will give up on the oil front and the gas glut in the us will drop due to companies who have stopped drilling and prices will skyrocket.

I don’t think the economy will react until there are some more clear indications which way prices will jump.

BTW, I live in the SF Bay area, and things have never been better! I don’t know about the rest of you guys… :slight_smile:

The U.S is getting hurt by a strong dollar, which hurts exports. The U.S largest trading partner, Canada is in recession, China is wobbling, Europe seems to lurch from one crises to the next, housing market and consumer index are both down or flat and manufacturing has lowered to near Great Recession-era levels.

I am sorry, why are you surprised the economy is not so hot?

Indeed I have been reading about serious worries of a Great Recession II in the next 12-24 months; remember that the first signs of the financial crises began nearly a year and half before the debacle of September 2008.

Another factor is that fuel prices in the western US haven’t really fallen along with crude prices anywhere near as quickly as they have in the eastern part of the country. In California, fuel prices immediately fell with the crude crash at the end of 2014, but damn near recovered by the middle of 2015 and are only in recent months starting to creep back down. That has affected the surrounding west coast and inland west states, too, and while those states have seen a more steady downward price slide, it hasn’t been nearly as precipitous as in the eastern US.

Valid points, but why isn’t the domestic sector taking off? Anybody who owns a car or has to pay for heat should have more money to spend on something else. Any business that pays significant shipping costs should see a benefit.

Is every benefit of lower energy prices offset by some other increased cost? And why should that be? My electric rates aren’t going down, is the utility invested in the fuel supply they use? There are supposed to be winners and losers in this game, where are the winners?

I think there are two factors at work. The first is that as oil became the only thing making money during the Great Recession the economy shifted to more oil production and more oil supported jobs. The second is that people learned to budget way more during the recession and don’t feel like spending that much. Now we are in a period of transition. The manufacturing economy will pick up and wages will slowly increase and people will feel like spending again, but the effect isn’t immediate.

It’s all Obama’s fault. Once Trump is elected, GDP growth is going to be HUUUUUGE!!

They AREN’T spending it. The personal savings rate was below 5% most of 2014, but above 5% most of 2015. In the long run, that’s good news, but it hurts the economy in the short run.

People like you and Procrustus don’t understand that the popular perception of the economy is one of fear and doubt. Take a look at the poll numbers–even now, 6+ years after the recession officially ended, the majority of people think that the economy is getter worse, not better.

Take a lot at the Gallup editors’ top five picks for 2015 news articles on the economy. 3 out of the 5 are negative.

Take a look at these charts. You’ll be surprised.

Compared to the 1990’s, the inflation-adjusted median individual income has hardly grown at all. A lot of people realize that on some level, even though they may not know the actual figures.

As a net importer, declining oil prices are a net positive to the U.S. economy. Obviously it is a negative in some places such as North Dakota, Midland, Houston, etc. Incidentally, this crash has not been as bad on the Houston (and Texas overall) economy as previous ones in the 1980s and 1990s as the economy is significantly more diversified now. Further, there aren’t as many impacts to the local banks since the banks are generally bigger and more national now and much of the debt owed by distressed oil companies is in the formal of high yield notes (junk bonds) instead of bank debt.

Historically it has taken about eighteen months before crashes in oil prices result in economic growth. Prices started declining in the summer of 2014 and really slid hard starting in around November 2014. There was somewhat of a dead cat bounce in the April/May 2015 time period with prices now at their low point. It will take time before the positive impacts take effect.

Low natural gas prices are a different issue. The recent lows are driven more by the extremely mild winter we’re having (on the heels of a relatively mild winter last year). On a weather adjusted basis, gas demand has been strong. Production growth has been huge (particularly in the Marcellus), which would have kept gas prices relatively low at around $3.50 to $4.50. The demand destruction caused by a warm winter is why prices have been more like $2.00. Also, we are a net exporter of natural gas, so you wouldn’t expect low gas prices to be a big boon for the U.S. economy.

You need to stop watching Fox News.

I was hoping you’d show up. As always, thank you for your contribution.

This is somewhat true. California gas prices are significantly higher than most of the rest of the country. Essentially, they have a different grade of gasoline and one of the major refineries that produce it has been offline. It’s been a huge boon to the remainder of the state’s refineries. Gasoline demand in the state has been very strong, supply is temporarily low, and their primary cost is very low (crude oil). It’s a good time to be a refiner in California (unless you are Exxon who has the shut in refinery).

See this graph for a good way to see the linkage in oil prices and GDP.


Oil prices have been shifted by 18 months and inverted. Seemingly pretty strong correlation, up or down.

NYMEX crude oil futures trade out as far as December 2024. As of today, the 12/24 contract is trading at $56.07.


So oil prices fluctuate wildly, and the world hasn’t changed.
So my personal conclusion is: the price of oil just isn’t as important as the professional economists like to think.
What motivates people’s individual financial decisions to spend their income is human psychology; not professional punditry in the Wall Street Journal or econometric calculations of the gross national product.
Many people know deep down in their gut that, even if they are paying less at the pump this week, the economy is still weak. They still have no job security, and sense that the current boom in the stock market is due to companies that temporarily manipulate their balance sheets, but don’t sell more products.

When the price of oil dropped below the cost of pumping out shale from the northern plain states, it slowed down one of the bright spots in our economy. I don’t know how much elasticity gas has below a certain price. Sure we are seeing lower air fares and perhaps slightly lower retail prices but overall, the economic growth from the exploitation of the Marsalis shale is probably more vital to our economy.

Oil and gas hedges can go out one or two years. sometimes longer.