Cheap oil: Good for some, bad for others

Associated Press

WASHINGTON — Sinking oil prices have cratered the stock market. But a silver lining could appear eventually.

Doug Shuffler of West York prepares get gas for his 1984 Cadillac Eldorado at York Fuel Stop on West Market St. Wednesday, Dec. 30, 2015. York Fuel Stop is the first York-area gas station the go below $2 a gallon. (Bill Kalina - The York Dispatch)

Cheaper gasoline and heating oil are giving consumers worldwide more money that they can use to step up spending later — and perhaps energize economies in the United States, Europe and much of Asia.

The question is, will they — and when?

The price of oil reached a 12-year low of $28.15 a barrel by the end of trading Wednesday before poking above $29 on Thursday. As recently as June, the price was about $60.

Retail gasoline prices have sunk to a national average of $1.86 a gallon, the lowest since 2009, according to AAA.

Not clear: The timing and size of the economic benefit that many

analysts expect to result from cheaper oil and gas isn’t clear. Oil prices began falling in mid-2014 but have so far failed to deliver the kind of boost to U.S. growth that economists had expected. One factor is that widespread layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending.

And many Americans have saved, rather than spent, the money left over after filling up. That has depressed growth because consumer spending drives about 70 percent of the U.S. economy. At some point, though, continued savings from cheaper energy could fuel more robust investment and spending.

“It’s a question of, do they spend it now, or do they spend it later?” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics.

Slump: Since the start of the year, global stock prices have plummeted. Many stock investors fear that cheaper oil reflects a worldwide economic slump that has sapped demand, particularly in emerging markets like China and Brazil.

But most economists say that a huge increase in the supply of oil, rather than a falloff in demand, is the main culprit for tumbling energy

prices. That makes it more likely, they say, that developed economies will benefit from energy savings and

remain healthy.

Another factor is the long-term nature of the price decline. Oil and gas prices have fallen for about 18 months. Eventually, experts say, the persistence of the price declines will likely assure consumers that cheaper gas is here to stay and encourage more spending.