Economic Slowdown: Oil & Natural Gas Prices Continue To Fall

I’ve been noticing that gas prices have been steadily falling for weeks now. So far oil and natural gas prices have fallen. It’s good news for consumers, but is it good news for the economy?

Market Stream reports that this is largely due to a decline in growth in China.

Oil prices fell 2% last week, during which they were “weighed by a weak oil-demand outlook after China’s disappointing [manufacturing index] reading … sparked concerns of slowing growth in the world’s second-largest fuel consumer,” ICICI analysts led by Pooja Sriram said on Friday.

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China’s manufacturing activity swung to a contraction in May after months of slowing growth, according to preliminary survey results from HSBC on Thursday. The “flash” version of its Purchasing Managers’ Index for May fell to a seven-month low of 49.6, down from April’s final reading of 50.4. A result below 50 signals contraction.

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Signs of weaker domestic and external demand in China added to concerns among investors about already-high inventories of U.S. crude oil. Last week, the U.S. Energy Information Administration said supply of the commodity fell much less than expected.

Dr. Gary North says that the energy sector is a “good proxy” for the international economy. However, he warns that falling energy prices indicate a slowdown in the world economy.

“Oil is the single most important international commodity,” writes North. “The world consumes a billion barrels every 12 days. It is the foundation of the world’s economy. There are few oil reserves. So, at the margin, the price of oil is determined mainly by demand. The supply does not change week to week. Producers are maxed out, or close to it, at all times. So, a decline in price reflects falling demand, which in turn represents economic slowdown.”

While I’m happy to see gasoline prices begin a downward trend, I’m skeptical about the future of the economy in the United States and abroad.

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