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An Eye on Energy

Courtesy of commons.wikimedia.org (Credit: Revisorweb)One important area our economists will be watching in 2015 will be energy, after oil prices fell precipitously in the United States this year. Although shale discoveries have increased supplies here, the price drop happened in the context of shrinking demand amid a sluggish economy in many parts of the world. We will be paying close attention to the extent to which global demand recovers.

The lower price of oil could decrease the willingness of oil producers in this country to make further investments, according to the forecast in AIER’s inaugural edition of the Business Conditions Monthly:

“New technologies to produce oil and gas from shale rock or tar sands have led to some major shifts in global output. However, these new techniques and devices tend to be expensive, and may quickly shift from being economically feasible to unprofitable should prices continue to fall.”

For an interesting look at this phenomenon, check out this article in The Economist from earlier this month, which suggests the burden of falling oil prices could fall on American shale producers.

On Friday morning, amid increasing supplies in the United States, a barrel of light sweet crude oil was selling for $55.84, down from roughly $100 a year ago; Brent crude oil was selling for $60.24; it had been above $100 a year ago. Imports by Japan, whose economy was showing further weakness on Christmas, were down 17.3 percent in November from the same month a year earlier.

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