People always find lower oil prices attractive. But the question is, are reduced prices in oil always 100% good news? Apparently not. It can have a negative impact on the housing market. In fact, it is anticipated that there will be a very slow increase in house prices in 2016, of only around 3.5 percent. And with states that produce energy that figure could be less or even go into decline.
Together with a negative impact on the housing market, the employment market could also take a plunge. Reduced prices in oil, gas and coal might lead to redundancies. According to National Association of Realtors Chief Economist, Lawrence Yun, “fewer jobs means less home buying demand and that will naturally soften the housing markets in those job-impacted areas.”
For example, British Petroleum will be forced to “eliminate 4,000 of the approximately 24,000 positions in its exploration and production units this year. That would be in addition to about 4,000 jobs that the company cut last year, when it trimmed its work force to about 80,000.” However, the oil industry in Mexico is currently faring quite well. “Petróleos Mexicanos just announced that “its production costs are among the lowest in the world, averaging under $10 per barrel among currently producing fields and less than $7 a barrel for its cheapest fields. ..This cost level means that Pemex production activities continue to be profitable even with the recent fall in hydrocarbon prices.”
Vancouver is encountering different negative impacts with the reduced oil prices. According to energy analysts, given the “lower prices and a global glut of oil [there are] fewer infrastructure projects than in years past.” As brokerage services director at CHS Hedging, Phyllis Nystrom said, “when people were starting to set their budgets, even as early as last fall for their capital expenditures for the coming year — and really almost out two years — people were already cutting back. Even when (oil prices) were at $60, people were starting to second-guess what they were going to spend.”
It thus seems that it is not as clear cut that reduced oil prices will result in increased wealth. As we can see from evidence recorded above, in some industries it can be helpful; in others, absolutely not.
Sorry, comments are closed for this post.