WASHINGTON | President Donald Trump is suggesting Americans should be happy about a plunge in oil prices because it’ll mean cheaper gas. Those savings at the pump, though, are likely to come at a cost to other aspects of their lives.
TRUMP: “Good for the consumer, gasoline prices coming down!” — tweet Monday after the price of oil sank nearly 20% and the stock market, already shaken by the coronavirus outbreak, took an even deeper dive.
THE FACTS: Lower oil prices look pretty bad for U.S. economic growth — and that’s probably a bigger negative on balance than saving some dollars at the gas pump.
Crude oil prices have roughly halved in the past three months. Estimates released Monday by the consulting firm Oxford Economics suggest the price drop if sustained could shave 0.2% off U.S. economic growth. Any benefits to growth from lower gas prices would be minimized because the coronavirus appears to be making Americans more hesitant about spending money.
The fracking revolution has made oil and natural gas production key factors for overall growth, and lower energy prices reduce drilling activity. That leads to fewer jobs, cuts in factory orders and a host of aftershocks that could leave the nation as a whole worse off despite lower gasoline costs.
Older Americans could be more reluctant to spend as lower stock prices and falling interest rates reduce their disposable income. Companies could halt hiring as more workers stay away from the office in hopes of containing the virus. It’s unclear exactly what will happen, but investors are now pricing in the risks.
Trump has celebrated the years-long ascendance of the U.S. energy industry, which stands to suffer in times of cheap oil. Monday’s price cut happened when Russia refused to lower production despite falling demand and Saudi Arabia indicated it would increase its output.
Oil prices last dropped by half in 2015-2016, to just under $30 a barrel. The decrease contributed to a slowing of economic growth from 2.9% in 2015 to 1.6% in 2016, according to Commerce Department figures.
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