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Saturday, 27 December 2014

Oil Crash: Don’t Believe the Happy Clatter

Wall St. On Parade
Pam Martens and Russ Martens

There is a mushrooming false narrative taking over the business airwaves: lower oil prices lead to lower prices at the pump which put more cash in consumers’ pockets which will lead to a more robust economy in the United States in 2015.

Yes, there are certainly lower prices at the pump. Yes, that gives consumers more disposable income. But it will decidedly not lead to a more robust economy in the United States for very long.

This isn’t a little speed bump in oil prices. This is one of the most dramatic and rapid crashes in a key industrial commodity in history. Since June, the price of West Texas Intermediate (WTI), the domestic crude oil produced in the U.S., is down by 47 percent. The price of the internationally traded crude oil, Brent, is down by a similar figure.

If this price collapse were happening in just crude oil, it could be shrugged off as a supply glut problem attributable to growing shale production in the U.S. and over production among OPEC members. But other industrial commodities are in freefall as well. Iron ore prices are down 49 percent this year while copper has declined 15 percent. The price of natural gas is down 30 percent in just the past month, including a plunge of 9 percent just yesterday.

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