Another subject affected by the collapse of oil prices is the world's major central banks. Central banks facing the pressure of raising interest rates due to higher inflation will get a breather, but central banks facing deflationary pressure, such as the Bank of Japan, may be defeated again because of the sharp drop in oil prices.
As global economic growth slows down, falling oil prices will ease the pressure on families and businesses. Excessive oil prices will reduce household income and consumers' purchasing power. In addition, it will also ease the pressure on crude oil importing countries and countries with current account deficits.
In terms of inflation, falling oil prices mean less inflationary pressure, which means less pressure on the central bank to raise interest rates.
Two. What does this mean for the United States?
Due to the emergence of shale oil production, the dependence of the United States on imported oil has been greatly reduced, which will weaken the expected economic results of falling oil prices.
However, Trump still likes falling oil prices, and described the plunge in oil prices on Twitter as equivalent to tax cuts. Trump frequently called for lowering oil prices, urged Saudi Arabia to further lower crude oil prices, and even introduced sanctions to use strategic crude oil reserves in an attempt to control the crude oil market.
On the other hand, some international investment banks believe that the oil price of $50 is very unfavorable to the United States, and the falling oil price again will test the profitability of American shale oil producers.
Jeff Currie, head of global commodity research at Goldman Sachs Group, warned that the "full cost" (including capital return) of producing crude oil in shale fields in the United States is about $50 per barrel. Therefore, the oil price of $50 will hurt American crude oil drillers, affect the production of shale oil in the United States, and may lead to problems in the credit market.
Currie thinks the best price for all parties is $65 to $70 a barrel. "When the oil price is at this level, it will not hurt consumers too much, and it will also create a stable environment for the industry."
In addition, the analysis believes that because the United States is an important oil producer, falling oil prices will drag down its economy, thus reducing its ability to resist the intensification of trade conflicts.
Third, what's good for China?
Jiang Chao of Haitong Securities believes that, as far as China is concerned, falling oil prices will lead to the reappearance of deflation ghost, and the expectation of easing will be prolonged.
Specifically, due to the sharp drop in oil prices, the prices of coal and steel have fallen simultaneously, which may lead to another negative PPI growth in 20 19, and the phantom of deflation may reappear, which also supports the continuation of the loose monetary environment.
On the other hand, Jiang Chao believes that the decline in import value will improve trade concerns.
In the long run, although the fall in oil prices may herald a slowdown in the economy, the advantages of foreign trade with China actually outweigh the disadvantages.
If the oil price stays at the current $50/barrel, it is estimated that it will bring China $70 billion in revenue next year.