Oil prices are expected to stay around $50 a barrel through next year, say analysts, though that may not give much of a boost to consumer spending, the economy and stock market.
That’s because the the 60 to 70 percent plunge in oil prices since July is due to the collapse of demand as the credit crisis careens through the global economy. So whatever benefits lower oil prices normally bring is more than offset by the profound weakness in the economy.
“The negative wealth effect [among households] is far outweighing any benefit that lower gas price is having on discretionary spending," said Chris Hyzy, chief investment officer for U.S. Trust, the private wealth management unit of Bank of America. "And we will not feel the positive effects of that until at least the second half of ‘09.”
Hyzy added that “contrary to prior cycles”—when lower oil prices were deemed good for stocks—falling prices are actually “having a negative spiral effect” by signaling a bottom has not yet been reached.
That’s because the the 60 to 70 percent plunge in oil prices since July is due to the collapse of demand as the credit crisis careens through the global economy. So whatever benefits lower oil prices normally bring is more than offset by the profound weakness in the economy.
“The negative wealth effect [among households] is far outweighing any benefit that lower gas price is having on discretionary spending," said Chris Hyzy, chief investment officer for U.S. Trust, the private wealth management unit of Bank of America. "And we will not feel the positive effects of that until at least the second half of ‘09.”
Hyzy added that “contrary to prior cycles”—when lower oil prices were deemed good for stocks—falling prices are actually “having a negative spiral effect” by signaling a bottom has not yet been reached.
