While low oil prices are often seen to be a good thing as it frees up consumer spending, this much of a dip is creating bigger concerns about the global economy.
It may be nice for consumers filling up on the pump, but the global economy is not enjoying oil’s recent plummet.
Oil prices have been dropping for six months and dipped below $50 for the first time in five years, ending up closing the day at $50.04, a $2.65 drop. The lagging prices are causing investors to worry about what it means for the health of the global economy, according to the Associated Press.
Reports that Greece could exit the euro was already dragging down stocks, and then oil’s slide ensured that stock sell-offs would be accelerated, causing the Stand & Poor’s 500 index to post its biggest loss in several months.
Up until this point, investors had expected the lower oil prices to open up the wallets of consumers, boosting the U.S. economy. But on Monday, prices kept going down, causing consternation among investors. If oil prices keep dropping, it will simply reinforce the idea that the problem is demand, not supply.
The S&P 500 posted a loss of 37.62 points, or 1.8 percent, to close at 2,020.58 — the largest one-day hit to the index since early October. The Dow Jones Industrial Average, on the other hand, plummeted 331.34 points to 17,501.65, a 1.9 percent drop. The Nasdaq fell 74.24 points to 4,652.57, which was a dip of 1.6 percent.
A decline in oil prices can be good for an economy because it can free up consumer dollars that can be used for purchasing other things, providing a shot in the arm to the economy, and dropping oil prices also reduce energy costs for industrial companies.
However, a significant dip in oil prices also causes problems for companies in the energy business, as it can drive them out altogether, costing jobs and also reducing spending on plants and equipment.
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