The sudden decline in the prices of the gallon of gas and oil might be good news for the consumers but not so much for the economy as a whole. Here is what Jeffery Born, professor of Finance at Northeastern University and an oil and gas expert in the D’Amore-McKim School of Business, has to say about declining oil and gas prices.
According to him the reasons for the sudden decline in the prices of oil can be:
- The OPEC (The Organization of the Petroleum Exporting Countries) has been selling it into the soft market so that price can go down and hence, oil can win back its old market that was taken over by cheap natural gas produced in India.
- The demand for oil has reduced in the recent past due to slow growth in China and many parts of the Euro-zone.
- The OPEC has been trying to hurt Iran and Iraq’s government over the political and religious conflict that escalated beyond rhetoric in January.
On being questioned about the effect of cheap oil on the budget of states with prominent oil drilling industries, he replied that the economies boomed due to energy drilling and production activities. Unemployment was very low and state governments enjoyed very healthy increases in taxes. The same states felt the pinch of decline a few months back, resulting in many companies cutting down the budgets and dipping into rainy day funds.
In comparison with 2014, the American government saved 4115 billion on gas but did not respond in the tax cut, helping the economy grow. So why aren’t consumers splurging with their gas savings? The professor replied that the consumers and the corporations are not confident that the economy will improve and are aware of the dismal and slow economic growth worldwide. So, this is contributing to consumer timidity in the U.S.