As we all know, the oil price has plummeted to a level we haven't seen in more than five years and this will obviously have severe consequences for both the USA and the Eurozone as major economies. At the current oil price, a lot of the shale gas oil and gas producers are nearing the territory where they become unprofitable and might have to shut down their operations. This means that a lower oil price is both a curse and a blessing for the States. A lot of people might lose their jobs if some higher cost wells will have to be abandoned but on the other hand the lower oil price might be beneficial to other sectors of the American industrial economy.
The Federal Reserve isn't worried yet as it said that it expects the low oil price to indeed fuel the further recovery of the American economy as the input costs will go down. The central bank expects its citizens to spend the extra money they will have at the end of the month instead of saving it. That's an interesting thought as we would be extremely surprised to see a 1 on 1 trade-off whereby the entire amount of energy savings will be used to increase the consumption pattern. Additionally, a lower oil price will reduce the inflation rate and that might be a side effect which wouldn't make the Federal Reserve happy as it plans to increase the benchmark interest rates from next year on.
William Dudley, NY Fed. Source
The Fed is also shrugging off the jobs problem stating that for now it doesn't think the drop in the oil price will intensify and there won't be a near-term reduction in oil and gas investment in the USA. This might be a very optimistic point of view as several companies need a higher oil price than $65 per barrel to be viable and we wouldn't be surprised to see quite a few job cuts in 2015 if the current oil price persists.
The impact of the low oil price is much more positive for the Eurozone as all Eurozone countries are net importers of oil. However, one cannot ignore the currency exchange rate factor (see next image). The oil price might have dropped by 40% in US Dollar, but the fall in the oil price was much less when looking at the oil price in Euro as the US Dollar continued to strengthen versus the Euro. The cheaper oil will obviously influence the inflation rate as well, and this might very well be Mario Draghi's worst nightmare as he's desperately trying to get the inflation rate up to its desired level of 2%. However, the falling oil price will also boost the GDP of the Eurozone and according to preliminary estimates the current drop will add roughly 0.3-0.4% to the GDP in the first year after the lowered oil price and will add approximately 0.8% over the first three years.
