Boom Goes Bust: Texas Oil Industry Hurt By Plunging Oil Prices

Cheaper oil has not been translating into economic growth over the last six months and falling oil prices have also stoked deflationary fears.

Some countries have been using the drop in oil prices as an opportunity to raise gasoline taxes, slash fuel subsidies or both. China has raised fuel consumption taxes by 50% since November, and Indonesia has eliminated fuel subsidies causing prices to soar. Brazil has both cut subsidies and raised taxes, causing retail fuel prices to rise some 7%.

The drop in oil prices has caused overall consumer prices in Europe to fall 0.6% in the last twelve months, a sign of deflation that is much feared by economists.

While chemical producers appreciate the drop in costs for petroleum as a raw material input, they are also afraid that their customers will demand discounts on plastics, tires and synthetic materials.

“The lower oil price is bringing more deflationary pressure rather than helping the economy,” said Vincent Chan, a research analyst at Credit Suisse. – As reported by the Wall Street Journal