The lower oil prices can have a positive impact on the whole economy

Tag : crude oil
From Sept. 15,when the liquidity crisis erupted, through the closeof trading last Thursday, the price of a barrel of light sweetcrude oil on the New York Mercantile Exchange had fallen $33.34, or32.9%, to $67.84.
Reversing a sharp spike to $145.29 on July 3, crude prices haddeclined 53.3% since then and had shed 29.3% year-to-date throughThursday.
With demand falling by between 6% and 7% off year-earlier levels,energy prices have declined by a greater amount than expected, saidMark Gilman, an oil and gas analyst at The Benchmark Co. LLC in NewYork. He has predicted that crude oil could fall to as low as $55 abarrel.
The recent declines are even more stunning, considering that lastspring analysts were expecting energy prices to continue theirascent.
In a report dated May 5, a team of analysts at The Goldman SachsGroup Inc. of New York, led by Arjun N. Murti, wrote that "thepossibility of $150-$200 per barrel seems increasingly likely overthe next six to 24 months."
Following that prediction, crude oil traded up 23% from $119.97,reaching an intraday high of $147.27 on July 11, just before thecommodity began its downturn.
"Oil prices are coming back down on a lot of the reasons that droveit up," said Brian Youngberg, a senior area analyst in utilitiesand energy at Edward D. Jones & Co. LP in St. Louis, who noted thatthe global economic slowdown has hurt demand and has led manyspeculative investors to liquidate their positions.
"The credit crisis has amplified how quickly energy prices couldcome back down," said Mr. Youngberg, who predicted that the priceof a barrel of oil would stabilize at $75 per barrel in the longterm.
As a result, he said, the lower prices are easing inflationconcerns and can have a positive impact on the whole economy.
While analysts are expecting the price of crude to continue tofall, advisers have been pleasantly surprised to see energy pricesretreat from their record levels. Few are willing to jump into themarket, however.
In the short term, the decline in energy prices is a deflationarymove that is a "wonderful thing" and is "exactly what is needed tomaneuver through rough economic times," said Mark B. Schindler, apartner at PivotPoint Advisors LLC in Bellaire, Texas, whichmanages $25 million in assets.
Ted Feight, president of Creative Financial Design in Lansing,Mich., which manages $19 million in assets, said that he is a"little bit surprised" that the price of crude oil has gone downrecently, and he thinks that the decline is a "huge benefit" forthe economy and will ultimately drive living costs down across theboard.
Mr. Feight, who holds a bachelor of science degree in petroleumsales and management from Western Michigan University in Kalamazoo,began to get out of the energy market in August 2007 and liquidatedhis last positions 12 months later.
"We are antsy to go back into the market, although I don't thinkthat it is time yet," he said.
Drew Tignanelli, president of The Financial Consulate, a HuntValley, Md., firm with $175 million in assets, said that if theeconomy remains in a short-term deflationary mode, he will stay onthe sidelines in the energy market.
"Once I see that the liquidity situation has calmed down, then Iwill see if the inflation scenario will come true," he said.
E-mail Aaron Siegel at asiegel@investmentnews.com .