Lower Oil Prices: Good News or Bad News?

November 01, 2012 | Lili Park, Vice President, Client Service

In the last week, U.S. crude oil prices hit a three month low dropping below $88 a barrel, attributable to economic slowdowns in China, Europe, and the U.S. Further downward pressure on oil prices has been caused by reduced earnings forecasts by U.S. corporations, unmet expected profits, and the growing worries for lower growth across the global economy. Crude oil inventories rose by 5.9 million barrels to a total of 375.1 million barrels, the highest since 1982.

This drop in oil prices will have mixed results for consumers. On the bright side, the lower prices may contribute to some relief for consumers at the pump, thus leaving additional room in consumer budgets for consumption of other goods and services – an accretive trend for GDP growth. On the other hand, the price drop is a symptomatic factor for a regressing weak global economy and suggests further slow growth.