Crude oil is in the middle of another unexpected meltdown which could go one of two ways; it could be nothing to worry about or it could be a sign that the economy is not in good shape. This sudden meltdown could be from a sharp drop-off in demand for energy. The last major meltdown oil had was in late 2015 and early 2016 when it dropped to $26 a barrel, but this had been a false alarm.
Analysts are not sure whether or not the oil sales are driven from supply instead of a more alarming drop in demand. Supply issues will naturally get some of the blame due to the high amount of oil countries like Saudi Arabia and the U.S. are pumping out. However, demand is also playing a role. Even though demand in the U.S. has been strong, demand in countries like Europe and Asia continue to be “relatively weak” and there is a risk for a slowdown in developing countries such as India, Brazil, and Argentina. This potential drop in demand is caused by the high prices, weak currencies, and deteriorating economic activity. Ziad Daoud, chief Middle East economist at Bloomberg Economics estimated the weaker demand to be responsible for about 85% of the decline of crude oil, but Daoud believes that oil is playing catch-up and this is not something to worry too much about. In addition, the co-founder of DataTrek Research, Nicholas Colas, said he wouldn’t get too overly concerned unless prices drop faster, “If it gets below $45, markets will pay much more attention.”
The dip in oil prices goes both ways for the United States which is both a large consumer and producer of oil. Even though the previous oil plunge from 2014-2016 led to dozens of bankruptcies and thousands of layoffs, the current oil plunge will benefit drivers at the pump. The national average price of gasoline declined 22 cents over the past month, according to AAA. American drivers will appreciate the decline in gas prices especially with the holiday season approaching- one that is filled with lots of traveling and shopping.