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- Oil prices have dropped about 22% last month (or 33% from the Oct. 3rd peak to around $51/barrel for U.S. crude oil futures)
- The benefit is that consumers don’t have to pay as much at the pump. Average prices at the pump are falling at the fastest rate in 3 years, according to fuel tracker GasBuddy. (down about 31 cents a gallon compared to a month ago)
- Falling oil prices used to be a bigger boon to the U.S. consumers but are not as effective today. (I.e., in 1972, it took 1.1 barrels of oil to produce ~ $1k of GDP, and now it only takes 0.4 barrels)
- Extraction techniques have changed from using large debt-free companies (Exxon, BP) who didn’t have much debt, to now using smaller debt-laden companies. Therefore, the lower oil costs may drive these smaller companies into bankruptcy, or prevent them from wanting to make further investments into energy, which can hurt the economy.
- The trend in net export levels has been declining for over a decade so domestic demand is waning and putting downward pressure on global prices (in addition to the most obvious, that the global economy is hovering at below-trend growth ever since the Great Recession.)