Crude oil price has crashed from $107 per barrel to around $44 per barrel. This is more than 60% fall in the oil price. Consumers all over the world are feeling relief after many years of high oil prices. Cheap oil enables people to spend more money. Consumption helps drive the global economy. But what about the oil producers? Russia a major oil exporting country is feeling the pinch. But what about the US shale oil producers. Now that oil prices have fallen below $46, any euphoria over cheaper energy will be tempered by losses that are starting to show up in investment funds, retirement accounts and bank balance sheets. The bear market has wiped out a total of $393 billion since June — $353 billion from the shares of 76 companies in the Bloomberg Intelligence North America Exploration & Production index, and almost $40 billion from high-yield energy bonds, issued by many shale drillers, according to a Bloomberg index. Watch this video which discusses the impact of cheap of oil prices!
https://www.youtube.com/watch?v=wBqc8-IpVKc
Lower oil prices are good for the economy and most businesses, but they are bad for the stock market in the short term. Energy companies have an outsized effect on the S&P 500 index because they are among the most valuable members of it. Energy companies are feeling the crunch of lower oil prices. Their investments are going down the drain with cheap oil with their stocks plummeting which is driving the S&P 500 down. Market cap of Exxon Mobil is equal to 10 times the average market cap of a company listed in S&P 500. So expect S&P 500 index to go down with cheap oil in the short term. Important question when oil price will reach the bottom!
What will be the overall effect of the oil price crash on the economy!