Experts Expect Milder Effect from Drop in Crude Oil Prices

By Barnaj. Feder, Ny Times | THE JOURNAL RECORD, October 11, 1988 | Go to article overview

Experts Expect Milder Effect from Drop in Crude Oil Prices


Barnaj. Feder, Ny Times, THE JOURNAL RECORD


As the price for crude oil slid below $10 a barrel in the spot market last week and officials of the Organization of Petroleum Exporting C countries warned that it could sink to $5, an uneasy sense of deja vu pervaded the world.

The sharp decline stirred memories of the price plunge that occurred in 1986, sending economic shock waves through oil-producing regions, including the American Southwest.

In both cases, prices fell after disagreements between Saudi Arabia and other members of the Organization of Petroleum Exporting Countries on oil production and pricing led to an oil glut. This time around, though, economists doubt that the impact of the decline will be so dramatic even if prices reach new lows.

To start with, there is less room to fall this time. In 1986, spot oil prices dropped by more than two-thirds, from around $24 a barrel to a low of nearly $8. This time, prices for the Arab crude oils were about $12.40 a barrel before they began their slide. They hovered just above $9 on Friday.

Many experts believe that OPEC's members would reach a new production allocation agreement long before oil reached $5 a barrel, the level at which it becomes uneconomic for much of OPEC's production to continue.

Even if such an agreement were not forthcoming, many experts say, the governments of the United States and other higher-cost producers would intervene to prop up prices to prevent their domestic oil companies from being wiped out by competition from the Persian Gulf fields.

Moreover, the expectation that producers or politicians would act to raise prices would probably lead businesses to buy increasing amounts of oil as prices fell. The increased demand would raise prices.

``The effects ought to be milder this time because the size of the drop has to be smaller,'' said Samuel Nakagama, a Wall Street economist.

In 1986, the immediate negative impact on oil-producing regions caused the gross national product of the United States to fall in the second quarter and rise at an annual rate of just 1 percent in the third quarter.

In the longer run, though, the savings - which amounted to about $200 million a day in 1986 - took 2.5 percent off the Consumer Price Index, 12 percent off electricity prices, 6 percent off the cost of such petroleum-based products as synthetic rubber and plastics and stimulated a boom in consumer spending, estimates DRI-McGraw Hill Inc., an economics consulting firm in Lexington, Mass.

Lower inflation also contributed to a rally in bonds and stocks, while adding 1 percent to the Gross National Product in 1987 and 2 percent this year, said Roger Brinner, DRI's chief domestic economist. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Experts Expect Milder Effect from Drop in Crude Oil Prices
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.