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http://www.cnbc.com/id/102083493
Low fuel prices can help boost economic growth by reducing fuel bills and leaving consumers and companies with more money to spend on other things. Problem is, two factors behind the oil-price drop—a weaker global economy and a stronger dollar—could hurt the U.S. economy by reducing exports, employment and spending. And all that, in turn, could outweigh the economic benefit of cheaper fuel.
"Initially, (a lower oil price) will provide a boost to an economy that already has some momentum," says Diane Swonk, chief economist at Mesirow Financial. "It's like a tax cut. The problem is that it will come back to haunt us in 2015."
A boom in U.S. oil production has helped sharply reduce dependence on foreign oil, a result of drilling in some of the highest-cost areas on earth. Drilling in areas of North Dakota and Texas, for example, produces only a slight output per day. If prices fell further, drilling would have to slow because it would no longer be profitable.
Oil hasn't fallen quite far enough for that to happen, analysts say. Even the more expensive drilling operations are still profitable when oil sells for $85 a barrel, near where oil traded Monday. In general, oil companies would have to expect oil prices to stay below $80 a barrel for many months to scale back their drilling plans.
Unless supplies drop, perhaps from a cut in production from Saudi Arabia or OPEC, or a sudden turnaround in the global economy that would increase demand, prices could fall further.
Low fuel prices can help boost economic growth by reducing fuel bills and leaving consumers and companies with more money to spend on other things. Problem is, two factors behind the oil-price drop—a weaker global economy and a stronger dollar—could hurt the U.S. economy by reducing exports, employment and spending. And all that, in turn, could outweigh the economic benefit of cheaper fuel.
"Initially, (a lower oil price) will provide a boost to an economy that already has some momentum," says Diane Swonk, chief economist at Mesirow Financial. "It's like a tax cut. The problem is that it will come back to haunt us in 2015."
A boom in U.S. oil production has helped sharply reduce dependence on foreign oil, a result of drilling in some of the highest-cost areas on earth. Drilling in areas of North Dakota and Texas, for example, produces only a slight output per day. If prices fell further, drilling would have to slow because it would no longer be profitable.
Oil hasn't fallen quite far enough for that to happen, analysts say. Even the more expensive drilling operations are still profitable when oil sells for $85 a barrel, near where oil traded Monday. In general, oil companies would have to expect oil prices to stay below $80 a barrel for many months to scale back their drilling plans.
Unless supplies drop, perhaps from a cut in production from Saudi Arabia or OPEC, or a sudden turnaround in the global economy that would increase demand, prices could fall further.
