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What Does Oil in the $40 Range Mean

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Crude oil closed Tuesday at $48.00. That means that oil in the $40s has arrived. Whether this remains in place is up to the oil market gods, but it has serious implications for consumers and companies alike.  What this means is far more important, particularly considering that oil has not traded under $50 since April of 2009.

Headlines hit on Monday that Saudi Arabia had lowered the price it was charging for light-sweet oil in the United States. It appears that Saudi Aramco lowered its light oil prices for February delivery by 60 cents per barrel. At the same time, Saudi Aramco raised light oil prices in Asia by the same 60 cents. UBS has previously said that the boost to gross domestic product is now only 0.1% per $10 drop in the United States. That figure used to be a gain of 0.2% to 0.3% prior to the shale boom.

 

Deutsche Bank also had a figure that used to be used — that is that every $0.01 change in the price of gasoline at the pump is worth roughly $1 billion to the economy. So, imagine the cost per gallon north of $4 suddenly heading to (or even under) $2 per gallon.