Global economy may record $1.1tr stimulus

    Written by Chijioke Nelson

  THE persistent fall in the price of crude oil may be creating a huge relief for the global economies, which would be benefitting to the tune of $1.1 trillion on a yearly basis.

  The crude oil's trading misfortune, which has hit a four-year record low, is now providing a much needed stimulus to global economies by lowering the cost of fuels and other commodities impacted the black gold.

  However, the development spells economic woes for countries like Nigeria and other less developed economies, which foreign exchange earnings are dependent on the vagaries of the commodity's market.
  Already, Brent Crude, the world’s most active crude contract, and priced equally with Nigeria's Bonny Light, closed at $83.78 a barrel in London yesterday, which was more than 20 per cent below its average for the past three years.

 According to Citigroup, at that rate, it amounted to savings of about $1.8 billion a day based on current output.

  Savings will reach $1.1 trillion yearly as the slide cuts costs of other commodities, leaving consumers and companies with extra cash to spend and bolstering growth, the bank’s Head of Global Commodities Research global in New York, Ed Morse, said.

  Crude oil prices are plunging amid signs that the Organisation of Petroleum Exporting Countries (OPEC)- supplier of 40 percent of the world’s oil, won’t act to eliminate a surplus as global growth slows.

  “A reduction in oil prices also results in a reduction in prices across commodities, starting with natural gas, but also including copper, steel, and agriculture,” Morse said yesterday in an e-mailed response to questions. “All commodities are energy intensive to one degree or another.”

  Regular gasoline averaged nationwide in the United States dropped to $3.177 a gallon, the lowest in more than three-and-a-half years, Heathrow, Florida-based motoring group AAA said.

  The Bloomberg Commodity Index slumped to a five-year low, about 50 percent below its peak in July 2008, while copper, natural gas, coal and iron ore are all far below their peaks.

  “Cheaper oil is an advantage for both consumers as well as industrial and manufacturing operations, especially as winter approaches,” Myrto Sokou, an analyst at Sucden Financial Limited in London, said.

  As lower energy prices help to reduce commodity costs, they can push down the inflation rate. While freeing up more money for consumers, outsized declines could become a concern in places like Europe, where policy makers are trying to stave off deflation, which can exacerbate an economic slump.

  “Lower prices, for most economies, reduce the cost of doing business and support economic growth. Lower prices offer a cushion of sorts against an otherwise vulnerable macroeconomic backdrop," the International Energy Agency, noted.

  Morse added that a further decline to $80 would cost OPEC $200 billion of its recent earnings of $1 trillion.

Culled from http://www.ngrguardiannews.com