Oil is a commodity used not just in petrol and diesel but many other products, such as If people see a fall in income because they are out of work, cheaper oil prices are only a small compensation. If people cut back on travel, cheaper petrol doesn’t make much difference. Therefore, there is little expectation that the lower oil prices will have any positive economic effect. However, this fall is due to expectations of a sharp drop in travel and economic recession from the coronavirus. Usually, a fall in oil prices would be greeted by consumers and firms due to the lower prices and costs. The above graph shows nominal prices and not adjusted for inflation. For a brief time in April 2020, Oil prices for WTI fell to negative prices. The oil price fall in March-April 2020 has pushed oil to its lowest prices for many years. Russia, Venezuela) could see a significant fall in export revenue.
Germany, Japan, India) will generally benefit from oil lower prices, but developing economies who rely on oil exports (e.g. The crash in oil prices in 2020 is indicative of the economic recession and prices have fallen so far that many oil firms will be forced out of business, causing job losses and falling investment.Īlso, falling oil prices will have differing effects depending on the country.
Also, if oil prices fall sufficiently, it can cause some oil firms to go out of business and this causes a rise in bad debts.
In this case, falling oil prices are not sufficient to increase economic growth because other factors keep growth low. However, sometimes oil prices crash because there are fears of an economic recession. The lower oil prices will effectively increase their disposable income and enable them to spend more on other goodsīecause oil is the most traded commodity and has a significant bearing on global transport costs, it should lead to inflation and can lead to higher rates of economic growth. Consumers who will also benefit from the lower prices of transport and fuel. A fall in oil prices should cause a reduction in transport and fuel costs for firms.
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