The oil price has fallen by more than half in a little over six months, and you might expect investors to be cheering. Perhaps they would have been — had the result not been a precipitous drop in inflation.
A flight to the safety of government bonds has caused yields to fall lower than they have been at any time other than the darkest days of the euro crises of 2012. Although stock markets are still only 3.5 per cent from their all time highs, they have become a lot choppier. Prices are bouncing up and down, suggesting investors have become more nervous about the prospects for economic growth.
Economists believe the fall in the oil price was triggered mainly by an increase in the supply of oil, following a rise in US production, and the decision by Opec to keep output high. Standard economic models suggest this should boost global output by between 0.5 and 1 per cent this year, if present oil prices are maintained. There will be significant losses among oil producers — but even bigger gains to oil consuming households and businesses.