Nov
27
How does oil react in a recessionary environment?
Filed Under (Investing) by oil
oil
Brian S asked:


Given the current market situation and the movement of the price of oil, the answer is clear that given a recessionary environment, the price of oil will fall. Why is this? Is it because of the market perception that a recession will cause less spending and therefore less demand for oil? If you have any sources, please cite them. Thank you!

COLE
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Comments

Bill B on 28 November, 2006 at 2:59 am #

As a recession takes old, consumers begin to curtail spending. Since the US consumer is responsible for approximately 70% of economic activity, when they slow spending, the whole economy is affected.

With an economy that is contracting (not growing), which is a classic definition of a recession, the reduced demand flows through the economy. When the economy slows, there is less need to ship goods resulting in lower demand for fuel (be it gas or diesel). Less demand for fuel means less demand for crude oil.

Take a look at this article.

Also a paper from the Stern School:


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