Monday , June 22 , 2015

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The oil price collapse to $50 a barrel has caused major ructions in financial markets as the world adjusts to much lower fuel costs.

Investors in UK markets took an initial hit as the heavily oil weighted FTSE 100 underwent severe turbulence in recent weeks.

But the fall in petrol prices from 1.27 a litre in late November to not much above 1 now is the equivalent to a massive shot of stimulus that puts extra
oakley sunglasses discount cash straight into people’s pockets.

Cash injection: Ordinary people are benefiting from cheaper prices and have extra money to spend

And while oil companies might remain under pressure, lower fuel prices are expected
fake oakley sunglasses cheap to slash costs across most other industries, freeing up cash they can either retain or pass on to customers in the form of price cuts.

So what’s behind the oil price shock, what might be the eventual fallout for the economy, and how can investors position themselves to make the most of any opportunities?

Why has the oil price tumbled?

The US shale oil boom has helped to cause a supply glut, while recent sluggish global economic growth has undercut demand.

OPEC, the international cartel of oil producing nations, normally agrees to cut production when the price falls to levels that make the oil business unprofitable for members, but it has failed to intervene this time.

The most powerful member, Saudi Arabia, has indicated it has no plans to do so, and up until now other countries have toed the line even though they are taking a huge financial hit from letting the price float freely.

Saudi Arabia’s reasons for keeping Opec on the sidelines while the oil price plunges are unclear, but the subject of much speculation.

Since the Saudis have deep pockets and can make money producing oil at much cheaper prices than other countries, it is widely believed they are trying to drive out of business US shale
fake oakley sunglasses cheap producers with higher overheads to eliminate competition in the longer term.

One conspiracy theory also has it that the Saudis possibly in collusion with US president Barack Obama are trying to punish oil dependent for its policies in Ukraine and the Middle East.

It is thought Saudi Arabia might give in and agree to cut production if oil falls as low as $40 a barrel.

What’s the fallout from the oil price shock?

Oil producing nations and companies will suffer, but oil importing countries, fuel guzzling businesses and ordinary people will feel the immediate benefits of having extra cash to spend.

After struggling through many tough years since the financial crisis, hard up consumers will be the first to cheer the dramatic fall in the price of petrol.

The sudden price cut actually represents the massive direct shot of stimulus that governments and central banks have fought shy of giving us for various reasons.

One expert we spoke to below even goes so far as to say a 10p drop in petrol prices is like a 1p cut in income tax.

Although the financial crisis has taken a huge toll on economies, most western Governments have refused to embark on big spending stimulus programmes despite the benefits of any resulting
replica oakleys rise in consumer spending.

They didn’t want to run up debts, especially if they were already high, or they have preferred to shrink their states through spending cuts and opt instead for pro business restructuring measures to support economic growth.

George Osborne: Chancellor has urged companies benefiting from cheaper fuel to pass this on to customers

This is the policy pursued by the UK’s Coalition government, although it has arguably also tried to trigger a consumer boom by artificially supporting house prices through the Help to Buy and Funding for Lending schemes.

Meanwhile, the Bank of England and US Federal Reserve have sought to stimulate economies through experiments like quantitative easing, but the money created was spent on government bonds, or sometimes corporate bonds and mortgages.

But they didn’t dare try anything as radical as handing cash directly to ordinary people by freely issuing us all with time limited cheques to spend how we like, for example due to fears prices would spiral out of control and at worst lead to hyper inflation.

That is not to say they wouldn’t have done this if they ever thought the economic situation
cheap oakley sunglasses was desperate enough to neutralise or outweigh the threat of inflation, of course.

Now, for better or
fake oakley sunglasses worse, the oil price fall has created just such a surprise windfall for the general public.

Initially, it is likely to prove deflationary ascheaper petrol cuts the cost of living, although after people start splashing out this might cause inflation later.

So far, the Bank of England and the Government seem relaxed about
wholesale cheap oakley sunglasses the de facto stimulus created by lower oil prices that they weren’t willing to provide earlier.Articles Connexes:

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