Cheaper oil could be big plus for global economy

ONE of the most striking economic trends of the last three months - together with volatile stock markets - has been the sharp decline in oil prices. What has caused this phenomenon, what are its likely repercussions and, if it continues, who will be the big winners and losers?

The decline has been precipitous. Spot Brent crude is trading at around US$85 a barrel, about 25 per cent lower than as recently as mid-June. In trying to determine what caused this, one could point to the renewed economic slowdown in the eurozone where even Germany is now flirting with recession, the recent downgrade of growth forecasts for the global economy by the International Monetary Fund and the weakest growth numbers from China since the global financial crisis.

But none of these explanations, nor even all of them together, can justify the steepness of the plunge in oil prices - all the more so given the approach of the Northern Hemisphere winter, which traditionally is associated with stronger energy demand.