Oil Prices and U.S. GDP Growth
Chart of the Week for June 10, 2016 - June 16, 2016
Over the past seven quarters, the price of a barrel of West Texas Crude Intermediate Oil ("oil") has fallen nearly 64%, from a high of $105.37 per barrel on June 30, 2014 to a closing price of $38.34 on March 31, 2016. While this is a positive for consumers when they fill their cars with gasoline, the fall in oil prices has had other negative impacts on the economy as a whole. The chart above compares the annualized change in U.S. Gross Domestic Product ("GDP") by quarter, to the closing price of a barrel of oil on the last day of that quarter.
While the energy sector accounts for only approximately 4% of GDP, energy sector spending on items such as drills and property is dependent on the number of wells open and being opened, and as oil has fallen, producers have been spending less. For the third quarter of 2015, capital expenditures per barrel of oil were estimated to be one-half of what they were in the third quarter of 2014. Also, energy sector spending in the third quarter of 2015 was the lowest in at least five years, which contributed to a drag on GDP. However, oil prices have rebounded nearly 80% since mid-January 2016, and some economists are predicting that energy investment will cease to be a drag on GDP in the second half of this year, and may even provide a small boost to GDP growth.
Posted by: sarah_oz@yahoo.com
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