NoTeaPartyPleez
Gold Member
- Dec 2, 2012
- 11,826
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There's noise coming from industry insiders that oil may go into the mid-$20 zone. This is not good. As much as I liked the $1.61/gal today, that kind of drop in crude will ripple out into other sectors.
Who Loses From Falling Oil Prices
GREG MCBRIDE: There has been a lot of discussion about how lower oil prices create an economic boost, primarily via cash-strapped consumers having some additional spending power with the money not being poured into the gas tank now available for discretionary spending elsewhere. This is particularly true at a time when wages have yet to experience the liftoff typically seen in economic recoveries.
However, it isn’t all sunshine and daffodils from an economic, or investment, perspective.
Yes, there is the obvious beating being taken by energy firms, and their stock prices. But consider the effects beyond the energy sector. Companies in the energy sector have been doing the heavy lifting of capital investment at a time when other sectors have been much less willing to invest for the future if it means parting with their cash. This capital investment–which faces a significant scaling back in the face of less cash coming in the door and fewer projects that make economic sense with oil prices under $60 per barrel–has boosted more than just GDP, but specifically the fortunes of companies in other sectors. One man’s spending is another man’s income, so plenty of firms in related industries will experience less robust business given the current circumstances faced in the energy sector.
This isn’t limited to large industrial-equipment suppliers. Think about the hotbeds of energy activity, such as Texas and North Dakota. Less money sloshing around will impact housing markets–fewer new homes to be built, fewer real-estate transactions that are the livelihood of real-estate agents, lenders and appraisers, and less discretionary spending at area restaurants, shopping malls and theme parks. While the impact on the bottom lines of publicly traded companies, particularly those with a national footprint, may be hard to discern, the investors in and owners of regionally focused and smaller privately owned businesses will be more susceptible.
While lower oil prices are seen as a broad economic gain, there will be pockets that experience pain.
The Effects of Lower Oil Prices – At A Glance
Who Loses From Falling Oil Prices
GREG MCBRIDE: There has been a lot of discussion about how lower oil prices create an economic boost, primarily via cash-strapped consumers having some additional spending power with the money not being poured into the gas tank now available for discretionary spending elsewhere. This is particularly true at a time when wages have yet to experience the liftoff typically seen in economic recoveries.
However, it isn’t all sunshine and daffodils from an economic, or investment, perspective.
Yes, there is the obvious beating being taken by energy firms, and their stock prices. But consider the effects beyond the energy sector. Companies in the energy sector have been doing the heavy lifting of capital investment at a time when other sectors have been much less willing to invest for the future if it means parting with their cash. This capital investment–which faces a significant scaling back in the face of less cash coming in the door and fewer projects that make economic sense with oil prices under $60 per barrel–has boosted more than just GDP, but specifically the fortunes of companies in other sectors. One man’s spending is another man’s income, so plenty of firms in related industries will experience less robust business given the current circumstances faced in the energy sector.
This isn’t limited to large industrial-equipment suppliers. Think about the hotbeds of energy activity, such as Texas and North Dakota. Less money sloshing around will impact housing markets–fewer new homes to be built, fewer real-estate transactions that are the livelihood of real-estate agents, lenders and appraisers, and less discretionary spending at area restaurants, shopping malls and theme parks. While the impact on the bottom lines of publicly traded companies, particularly those with a national footprint, may be hard to discern, the investors in and owners of regionally focused and smaller privately owned businesses will be more susceptible.
While lower oil prices are seen as a broad economic gain, there will be pockets that experience pain.
The Effects of Lower Oil Prices – At A Glance
