Lower oil prices are being caused by two things: The first is a price war between Saudi Arabia and the United States. The Saudi's are desperately trying to undermine the Light Shale Oil revolution in the United States. The second is they're also trying to protect their own market share against other OPEC members giving "discounted" prices to the Chinese.
Now the side benefit for both Saudi Arabia and the United States in all this is the economic damage being done to Russia, Iran, Libya, and Venezuela. Russia and Iran are common enemies to both Saudi Arabia and the United States. So there's some "satisfaction" in hurting both of them. Libya and Venezuela (along with other OPEC and non-OPEC members) rely on high oil prices to support their economies and "social programs." Both countries are in economic collapse, which happens when you're one export is oil combined with a socialist/marxist government with central economic control.
The point is being made because no way increased supply can possibly cause such a huge drop.
Actually, yes it can. It's called OVER-SUPPLY. Three years ago the United States wasn't pumping millions of barrels of light shale oil daily. Today we exceed the output of Saudi Arabia, OPEC's biggest producer. We did that in three short years. Adding NINE MILLION new BARRELS OF OIL PER DAY absolutely will - and has - had a major impact on oil prices. The Saudi's themselves recognize the shale oil boom as the biggest threat to them.
Now are deteriorating economic conditions in China contributing to the collapse in the price of oil? Absolutely. How major of a factor is China's economic collapse vs. over-supply? I don't think we know that yet and your guess is as good as mine.
Can low oil prices spur economic recovery? Absolutely, see my post above how.
I've long said here on this forum that the key to America's economic recovery was dependent on two things.
First is cheap energy. We're achieving that.
Second is bringing manufacturing back to the United States.
Manufacturing only comes back if energy is cheap and plentiful in the United States. One of the main reasons so much of our own manufacturing headed over to Mexico and then China was for cheaper labor. The shift to China for cheaper labor coincided with high energy cost. Even then it was cheaper to manufacture textiles, electronics and other goods in China then "ship it back in bulk" to the US for sale.
More and more companies are recognizing that Chinese labor really isn't that great, they're tired of their patents being violated (read that: intellectual property being stolen and are getting tired of propping up a corrupt Chinese Government. (If we think the USA is bad, we're amateurs compared to China.)
With the drop in energy prices, it's actually cheaper to manufacture here now, than it has been in the past, even with our higher labor costs.
Companies no longer ship raw materials to China from the United States for manufacture and assembly. Those raw materials now stay here. Companies no longer pay shipping costs back to the US for finished goods, and they're benefiting from our lower energy costs. The cost savings from all three typically now offset the higher labor costs in the US.
General Electric has moved appliance manufacturing and assembly back to the U.S. for example. A large battery company is moving to Indiana from China, and not far from where I live new Tool & Die shops are being built moving those facilities back from China.
It's happening. Won't be over-night, probably happen over the next decade, but we are seeing manufacturing shift from China back to the U.S. and yes, lower oil/energy prices are having an impact on that.
Good post. I’m just pointing out an alternative perspective than the MSM is stating: that the “over-supply” argument may wane soon, as evidence of a severe global economic recession can no longer be papered over.
Another point about interest rates: the banks and the Fed will move heaven and earth to keep rates low, by any means. Federal interest payments and dozens or hundreds of trillions in interest rate derivatives are at stake.