10 reasons why you should worry about cheap oil

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10 reasons why you should worry about cheap oil

Some may think that lower gas prices would boost the economy. By not spending as much on your tank, hopefully you’ll spend those savings elsewhere. But according to Matt Egan from CNN Money, there are 10 reasons why you should worry about cheap oil prices.

  1. It’s affecting your retirement account: Due to the crash in oil, it’s caused energy profits to plummet.
  2. Oil companies are going out of business: Driven by expensive drilling technology, these companies are no longer seeing the return on investment, forcing them to close their doors.
  3. Big banks are bracing for losses: The large U.S. banks that helped fund the energy boom are already setting aside billions to cover potential loan losses in the oil industry (refer to #2).
  4. People are losing jobs: The energy industry cut 130,000 jobs in 2015, job losses within oil-related businesses are likely even higher (refer to #2).
  5. Cheap oil could signal trouble in the global economy: “When economies are booming, they consume lots of oil — and vice versa.”
  6. Emerging markets could be in trouble: “Many economies like Brazil, Venezuela, Colombia and Russia are powered by energy exports. […]The U.S. has deep trade relations with many of these countries, and that will undoubtedly take a blow.”
  7. More trouble in the Middle East: Tensions are on the rise OPEC, which can’t help the already-volatile regions of Saudi Arabia and Iran.
  8. Home foreclosures are rising in oil states: Foreclosures have increased by 16% in in 2015, the same is expected for Oklahoma and North Dakota (refer to #2).
  9. Lack of U.S. energy independence: With U.S. oil companies closing shop, production is now expected to decline, forcing the U.S. to rely once again on the Middle East.
  10. People are saving, not spending: “The idea that cheap oil is a net positive for the U.S. hinges on the consumers spending the money they’re saving at the pump.[…] U.S. retail sales actually fell slightly in December despite the fact that gas prices continued to fall at the end of last year.”

 

To read Matt Egan’s full article from CNN Money, visit http://money.cnn.com/2016/01/21/investing/oil-crash-fallout/index.html?sr=fbmoney012116oil-crash-fallout0715PMVODtopLink&linkId=20557873