Oil - Boon or slippery slope

Roughly one year ago, the consensus forecast for the end of 2014 was $100 per barrel for West Texas Intermediate and $110 for Brent crude — a miss of about 30% compared with current prices around $70.

“In a year full of macro surprises, the sharp decline in the price of crude oil is the latest development to make headlines.” - By Robert Spector, Sanjay Natarajan and Robert M. Hall, MFS

Below summary by Anthony O'Brien

Roughly one year ago, the consensus forecast for the end of 2014 was $100 per barrel for West Texas Intermediate and $110 for Brent crude — a miss of about 30% compared with current prices around $70.

To be sure, there are bound to be pockets of the global economy that will benefit from lower energy costs. When all the positives and negatives are balanced out, we can likely expect a net boost to global growth relative to what we would have seen with $100 oil. Then again, it was weak global growth — alongside oversupply — that was a key contributor to falling crude prices in the first place, so the argument becomes kind of circular.

Prefer to think of the oil price drop as stimulative overall, similar to a tax cut. Declines in the price of any commodity help distribute growth away from regions that are producers toward those that are consumers.

To read the full article click here

Related Articles