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Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: Falling oil prices may cushion recession blows By ALEX KENNEDY,Associated Press Writer AP - 48 minutes ago SINGAPORE - The collapse of oil prices _ which fell below $40 a barrel to a 4 1/2-year low Thursday _ is a rare bright spot amid the economic gloom that could provide some much-needed relief to consumers, companies and even governments. Falling prices for gasoline and heating oil _ and by extension food and other products _ could help cushion the global economic slowdown, experts say. Since peaking at nearly $150 a barrel in mid-July, oil has plummeted 72 percent in just five months on expectations that slowing growth around the world will sap energy demand. Oil sank as low as $39.19 a barrel on the New York Mercantile Exchange before recovering some as investors brushed off OPEC's largest-ever production cut. That's meant lower gasoline prices for motorists, as well as lower heating bills for homeowners this winter. "It's a great positive for the world economy because experience has shown that when oil prices fall, consumers tend to spend the savings from that," Frederic Neumann, senior Asia economist at HSBC in Hong Kong. "That should give a nice boost to world demand next year." Companies should get at least some relief from lower energy costs, particularly for transportation industries such as airlines and shipping _ although it may not offset the blow from waning consumer demand. "The problem is that in many industries, like shipping, the decline in sales outweighs the effect of lower production costs," Neumann said. "For airlines, the decline in oil prices is so large it will outweigh the lower demand for air travel and raise profitability at the margin." The drop in oil prices has also brought down inflation _ a serious problem earlier this year in China and India _ giving central banks room to cut interest rates to spur growth. "Lower oil prices have allowed central banks to be aggressive with their easing," said David Cohen, director of Asian economic forecasting at consultancy Action Economics in Singapore. In the U.S., where consumer prices fell 1.7 percent in November, the Federal Reserve slashed its key rate to a target range of zero to 0.25 percent, a record low. China, which has also been cutting interest rates, said its inflation rate fell to 2.4 percent in November from a 12-year high of 8.7 percent in February. On Thursday, China announced that it was cutting gasoline prices 13.8 percent and diesel by 18 percent, while India lowered gasoline prices 10 percent on Dec. 5. Both countries regulate their retail fuel prices. Lower oil prices, however, have stymied demand from crude exporting countries, which rely on commodity sales to fund much of their budgets. "Oil producers had been helping keep demand in the world economy going," Cohen said. "The Russians and Saudis were making big orders for goods from around the world because they had the money. Now they're having problems." The 13-nation Organization of Petroleum Exporting Countries, which accounts for about 40 of global oil supply, has reduced output quotas by 4.2 million barrels a day since September, including a 2.2 million barrels a day cut announced Wednesday. But markets had already expected a vastly reduced flow of oil and remained fixated on troubling economic data that points to a long and severe global economic slump _ and less energy demand. Some economists are doubtful that American consumers will spend fuel savings instead of save or pay down debt. With equities losing about $30 trillion of their value worldwide this year and U.S. property values falling about $6 trillion, a negative wealth effect _ when people feel poorer because assets lose value _ may make U.S. consumers gun-shy to spend any oil windfall, some say. "The wealth effect from the decline in housing and equities is very powerful," said Yuwa Hedrick-Wong, Asia economic adviser at MasterCard Worldwide in Singapore. "I believe U.S. consumers are changing from net debtors to net savers, and this will continue for the next few years." Email Story IM Story Printable View Blog This Recommend this article Average (0 votes) Sign in to recommend this article » Most Recommended Stories » Related Articles: Business India's new oil subsidy plan by mid-Jan - sourcesReuters - 20 minutes ago Euro zone imports and exports fall, outlook grimReuters - 23 minutes ago Jobless claims expected to stay near 26-year highAP - 25 minutes ago Energy, bank stocks lead European shares lowerReuters - 25 minutes ago Turkish lira gains 2 pct, rate cut eyedReuters - 31 minutes ago Most Popular – Business Viewed 'Dark energy' expands, contracts universe: researchers Actress Jennifer Aniston appears naked in GQ magazine Bush laughs off Iraq flying shoes drama US doctors hail near-total face transplant Dollar dives to 13-year low against yen after Fed cut View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular

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