What's going on?
After reaching a four-year high in October, the price of a barrel of oil fell 21% on Friday, sinking below $70 and headed for its longest-ever decline. Don’t slip on the slick (tweet this).
What does this mean?
Oil prices rose after the US announced a host of sanctions on oil-rich Iran, leading to investors expecting vast quantities of oil to vanish from the market and cause shortages (supply down usually means prices up). Yet the march of the black stuff has been arrested because Russian, Saudi, and US oil companies opened the oil floodgates a little too much, overcompensating – and Iran’s biggest customers were spared once the US’s sanctions began.
Oil’s decline reached a “bear market” – meaning its price has fallen by more than 20% without bouncing back significantly. On Sunday, the major group of oil producing countries, OPEC (which decide whether to produce more or less of the slippery stuff) met – and Saudi Arabia said it’d lower its production next month, with Russia likely to follow suit, according to The Wall Street Journal.
Why should I care?
For you personally: Cheaper flights and sneakers.
Anything involving travel uses oil, so things like airline tickets might fall in price – eventually. Less obvious beneficiaries include Adidas, which uses plastic (made from oil) in sneakers. Dozens of industries should face less pressure to raise prices because one of their costs, oil, is much cheaper – which is not only good news for consumers but for the economy, too, as people should have more money to spend on other things.
For markets: Not the negative spiral it could be.
The oil price tends to rise when the global economy’s strong, as it’s needed to make more products, and vice versa. So, when the oil price drops precipitously, investors tend to worry that it signals falling economic growth. In this case, investors have less reason to worry since demand’s pretty much as expected – if not a little better – and the likely culprit’s too much oil.