Crude Awakening

Submitted by Admin on Wed, 01/07/2015 - 09:19

For the first time since 2009, consumers are finally saying "it's about time", as the price of crude oil is around $50 a barrel, which appears just fine. However, the global economy could be suffering down the line.

At one moment, the price fell more than a dollar to $49.92 a barrel in early trading on Wednesday before edging back above $50.

Meanwhile, as many consumers and businesses welcome a drop in the cost of fuel, oil producing countries including Russia and Venezuela have been hit as the price of their main export falls.

From the viewpoint of the real economy, falling oil prices should be a boon to American consumers as they drive down gasoline prices in the country, which is heavily dependent on cars for transportation. But the drop in oil prices triggered selloffs of a wide range of energy sector stocks in the New York stock market, pushing down key indexes.

The U.S. Federal Reserve is concerned that sinking oil prices may lower the inflation rate below price stability targets. A price drop is good only so far. Large declines could accelerate disinflation toward deflation. That should not be welcomed by households. While people are happy about cheaper gas for their cars, they should also worry about organization's bottom lines.

Dazed and confused stock markets are not that happy about cheaper oil. Bond markets are struggling to figure out how to respond to global interest rate declines. Stay tuned its bound to be bumpy ride.