Market Commentary

Falling Oil Prices are Not Always a Good Thing

momentum investing analytic

The U.S. has dramatically increased the supply of oil ever since the shale oil revolution started a decade ago. Spending on drilling and other investiture has helped the economy enjoy its rebound in recent years. However, now that U.S. production has reached 10 million barrels a day making it the leading worldwide producer (or maybe second to Saudi Araba) prices at the pump have plummeted. Last month’s fall will likely translate into a reduction of capital expenditure by the industry.

The consumer rejoices at the lower prices, but the benefit of lower prices is a net negative for the economy as the industry lowers spending.

Though this is not a major hit, it is a dent in the economy and many dents can add up. We already have a rather large dent in housing.

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