Decline In Oil Prices Will Not Affect The U.S Economy

The deep plunge in the price of oil will only affect a small part of the economy of the United States.

In the case of the United States, there are only two parts in the growing news of crashing oil prices. The good part is that consumers and a lot of businesses will gain from the decrease in the price of oil. They will be able to save a lot of money intended for gas and spend it on other things instead such as goods and services which in return will help lift the economy.

The bad part of this is that if the price of oil continues to decrease in this manner, big energy companies might be forced to stop or slow down in their shale drilling projects. The cost of oil as it is may not cover all of the expected expenses. And what does it mean for the U.S.? It means that these big companies will stop spending big on their businesses. That’s bad news considering they are the source of all the huge business spending in the country, furthermore, these shale drilling projects created a lot of job opportunities.

If the price of oil remains to in the low state for a longer period, anything from 12 to 18 months, industry growth will receive an impact this coming year 2015. These impacts won’t be as great as it will be on 2016 if the price remains low. It will be a more drastic turn for the U.S. capital expenditures cut if the price of Brent remains under $75 per barrel.

Industry might be cooling down in a major way in the near future since Brent is currently at $62 per barrel while WTI is at $58 per barrel.

This thing could unfold in three ways:

1. It will crush the profits of hydraulic fracturing. It is expected that the earnings of the energy sector will be down by 11.9%.

2. Business spending on the US will be greatly affected.

3. Despite the two above factors, the US economy as well as the market will never notice since it only constitutes 1% of the GDP.

This only verifies the fact that if oil prices continue to deteriorate, it will greatly affect the oil sector but it will be better for the other sector of the economy.