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27-Jan-2015

2015 may be record year for economy

Oil prices are dropping dramatically and we are seeing that at the pump. The cost of oil is the lowest it has been in four to five years due to the increase in supply. Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) met November 27 and they have no plans to cut production. OPEC lowered its projection for 2015 production to 28.9 million barrels a day, or about 300,000 fewer than previously forecast, a 12-year low, according to Bloomberg.


The Saudis do not believe they should be the only nation to reduce oil production, as this will have a negative effect on their share of oil revenues. They want the burden to be shared by the rest of the oil-producing nations. OPEC knows this surplus of oil will continue to drive down prices. One element contributing to this surplus is shale oil, which has been the result of fracking. Shale oil recently hit the market and production has increased in the last several months.


The process of fracking has been effective in the U.S. in response to their dependency on oil from the Middle East. However, the way this oil is refined differs from oil that comes from traditional wells. Existing refineries cannot treat or readily refine this type of oil. To refine shale oil, new refineries will have to be built, which means getting approval from the Environmental Protection Agency (EPA). This also impacts other non-renewable resources that result from fracking, such as natural gas. Natural gas will become abundantly available as it is a by-product, in many cases, of shale oil production.


With oil prices dropping, consumers are able to reallocate the money they would be putting in their gas tanks to other purchases. This is good news for retailers and the automobile industry. There has been, and will continue to be, an increase in people purchasing larger vehicles like high-end trucks, SUVs and heavy-duty luxury vehicles that have higher price tags, higher profit margins and lower fuel economy ratings.


The economy in the United States reflects the positive upturns, which are being channeled from several sources including the rise in equity markets, lower unemployment, higher wages, technological growth, low interest rates and the abundance of oil in the market. As of 2014's third-quarter the Gross Domestic Product (GDP) is at an all-time high at $17.5 Billion. It is because of these factors that the recent downturn in the stock market, approximately 9 percent, was recovered quickly and has surpassed the point of decline, taking us to yet higher “record” equity prices.


Small businesses are in a prime position to launch, expand and grow. The government has created an environment where lending and other support programs are able to help small businesses build the foundation for commerce and innovation. If all indicators continue to move in the same directions as the status quo, 2015 looks to be a record year for the economy .  .  . in a good way.



About the Author

David Schultz
Owner, Eagle Financial Services
David owns Eagle Financial Services and is an accounting instructor at Central Community College in Hastings. He has been the MIS and payroll manager for S&J Detasseling since 1987. He has a BA in Finance from UNL.


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