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University of Maryland, College Park

Falling oil prices raise fears about economy

Chris Woodyard
USA TODAY
A man pumps gas at an Exxon gas station in Waltham, Mass., in this 2008 file photo

While most Americans are sure to celebrate oil prices hitting six-year lows, investors and those working in the oil industry were sulking Friday.

The Dow tumbled a whopping 367 points to 17,129 Friday and capped off its worst two-day slide since August, largely because oil fell below the critical $35-a-barrel threshold this week and investors are worried what that weakness may say about the global economy.

The price of U.S. benchmark crude dipped to close at $35.73 in trading in New York, the lowest in six years and a far cry from the $145-plus highs seven years ago.

With the holiday driving blitz starting this weekend, travelers were finding bargains at the pump. The average price of a gallon of gas was an even $2, lowest since 2009, compared to $2.48 on the same day last year, AAA's Fuel Gauge Report shows. Low oil prices reverberate through the economy -- from low diesel prices for truckers to cheap home heating oil for those in frigid climates.

But sharply lower oil prices, at least in the short run, raised concerns about why prices weren't held up by the usual spike in demand -- expected anytime a commodity hits lows -- and whether it might signal a coming slowdown in the economy. It doesn't help that the Chinese and Asian economies have slowed.

It all says a lot about importance of oil as commodity

"It's an emotional asset," says Peter Morici, an economist at the University of Maryland. In the short run, the decline in prices whacks jobs in the energy industry, cutting economic growth there, but in the long run spurs economic growth as people spend their money in other ways.

"Falling oil prices should be beneficial to the U.S. economy," Morici says. "Americans have more money to spend on all kinds of stuff."

No doubt about it: Lower prices have taken their toll in areas of the country that had been taking advantage of the oil-production boom. In oil-rich Texas alone, 60,000 energy-related jobs vanished form the peak at the end of 2014 until now, says Karr Ingham, energy economist for the Texas Alliance of Energy Producers.

"The Houston economy is not what is once was," he says. But the bigger concern is for the economy as a whole. "Traders are concerned about general demand weakness out," he adds.

For now, the oil glut continues. Even though it's cheaper, consumers are unlikely to find new ways to use more of it in the short run -- or at least until more Americans buy larger, thirstier cars. "Until the supply-demand balance recalibrates, you're going to see lower oil prices," says Ed Hirs, an economist at the University of Houston.

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