The Anna Maria Island Sun Newspaper

Vol. 15 No. 14 - January 28, 2015

BUSINESS

Anna Maria Island Sun News Story

Energy price drop a boon to average American

Investment Corner

The recent drop in energy prices has caused angst among workers and investors in the energy sector where pink slips are coming to some and where corporate failures may occur among the higher cost energy producers, namely the American and Canadian shale oil companies.

But, aside from the potential problems in those areas, falling energy prices are a boon to the average American family. Less than 10 percent of workers are employed in the energy industry and only a small percentage of those have jobs at risk. After all, we’re not going to stop using oil, so those energy industry workers who keep their jobs will also enjoy lower prices when they fill up their gas tank, pay their utility bills or perhaps buy a lower price airline ticket in the coming months.

The five and a half year old economic recovery we are in has, so far, benefitted investors and the higher income earners more than the average family. The drop in oil prices from over $100 a barrel six months ago to under $50 today doesn’t mean that much to the high income earner who is going to fill-up his/her SUV regardless of the price of gas. But to the family making $30,000 to $50,000 a year, the savings on filling up the gas tank is a bigger deal – effectively the same as a tax reduction.

The U.S. Energy Information Administration recently advised that the average American household would save about $750 this year due to the drop in gasoline prices from almost $4 a gallon several months ago to under $2 for most of the country today. In addition, for those who live in the Northern part of the nation and heat their home with oil or natural gas, an additional $750 may be saved this winter.

These families will now have more disposable income, which may be spent on other goods and services, providing a boost to the economy’s growth rate and possibly creating more jobs. Of course, they may also choose to save some of this money, which would help the savings rate, which is always a positive factor.

I would also point out that in the two previous decades, the 1980s and 1990s, where oil prices were generally in decline, the economy was able to grow with lower inflation rates for long periods of time, allowing for better fiscal conditions. In the mid-1990s we had several years where the U.S. budget ran at a surplus due to steady economic growth and some practical spending measures put in place by deals between President Clinton and a Republican controlled Congress.

The difference this time around is that the decline in energy prices has been precipitous, which created fear and uncertainty about how far the decline may go and the consequences which may follow. Since the world is not close to weaning itselves from the use of crude oil, and, in fact, we may see more being used as prices are low, the bulk of the decline is most likely behind us. However, predicting the future is hazardous business, and I would be remiss to declare that oil will not decline further. But, most of those now calling for oil to drop into the $30 range didn’t predict the drop from $100 to $48, so they don’t have a lot of credibility in my opinion.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.

 


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