Downturn in investment and falling of oil and gas prices has been a major factor hurting the economies of the United States and other petroleum producers nowadays. In fact, this year is considered to be a year with the worst start due to the unstable economies felt by many expectators around the world especially in the United States.
For the past weeks, many economists believed that the downturn of oil prices due to the overproduction of its supply provides a positive impact in the economy. Somehow, it is true. However, they tend to forget that the petroleum industry is one of the biggest contributors in the overall economic activity. As quoted in John Kemp’s Reuters report last week, the production and refining of oil and gas is also a major industry in its own right, so a downturn in drilling can have a big negative effect on growth in the short to medium term, until the other effects on other industries and consumption dominate in the long run.
Many investors prefer to sell their stocks equal in value to the annual economic output of Britain and France combined since New Year due to their fears brought about by the China’s ailing financial and economic health. Many reports had given ample focus to further devaluation of China’s economy which resulted in global deflation and recession. The petroleum industry, by turn-over and investment, is one of the largest industries in the United States and around the world. It has been reported that, in U.S. alone, 14 percent in all new capital expenditures are engaged with oil and gas extraction and refining amounting to $200 billion. This lasted around first half of 2014 but is cut sharply in the second half. This major cut in capital expenditures had paralyzed a huge part in the economic activity and had brought negative sentiments in many expectators worldwide.
To boost economic activity, more money needs to be circulated in the market by acquiring more cash in financial institutions. The Federal Reserve’s move in increasing the interest rate late last year was criticized by many analysts as a wrong timing since the recession in the petroleum industry is still occurring and, therefore, is ripping all along the supply chain, as reported by Reuters.