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Untangling the oil price mystery

February 7th, 2016 7:30 AM

By Southern Star Team

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LAST week I filled my heating tank for exactly half the price it was this time last year. I topped up my car for about 30% less. so in a single day I was about €500 better off. As were 100’s of millions of consumers across the world. This is probably worth, conservatively, €4,000 per annum to the average middle income household, which is a substantial amount of money. It probably increases the spending power of these households more than 10%. And that is tax-free money, remember. Can you think of any other single event that has had this dramatic effect on incomes?

So, where is it coming from and where is it going? 

Well, clearly, it is coming from the sheiks of Saudi Arabia and the oligarchs of Russia, whom I am sure will survive for another week or two, although Chelsea and Manchester City may not be able to buy so many new players. These billions, which were flowing into those countries for nigh on a decade are now are oozing out all over the world, into the pockets of consumers in non-oil producing countries, you and me.

So why all the doom and gloom in media and markets? Ok, oil bounced back a tad recently, not enough to change anything. China is in decline (em, only 6.5% growth this year) deflation is looming (0.2%, if you can measure that) and the oil giants are laying off workers. Ireland is doing very well indeed.

But here is my trillion dollar question: Where is all the money that is filling our western and eastern pockets going? 

Shouldn’t there now be a consumer boom in all the countries dependent on oil imports? Surely it is not all ending up under mattresses?

I can only assume that the time lapse between the spending of these newly found oil dollars and the release of the national economic figures has not caught up and that we will surely see that happening soon.

 

Dr. Owen O’Brien is a lecturer and Entrepreneur in Residence at the School of Economics at University College Cork. See www.owenobrien.com

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