Oil Continues to Fall on Slowing Global Growth Fears

Oil futures fell over 4% on Monday morning as worries mount that economic growth is slowing around the world.

In the U.S., WTI futures expiring in February fell over 4% to $46.41, while Brent futures fell 4.5% to below $48. Oil futures have fallen 20% in the past month, after WTI futures fell to less than $60, which many analysts said was unsustainably low.

Oil futures fell over 4% on Monday morning as worries mount that economic growth is slowing around the world.

In the U.S., WTI futures expiring in February fell over 4% to $46.41, while Brent futures fell 4.5% to below $48. Oil futures have fallen 20% in the past month, after WTI futures fell to less than $60, which many analysts said was unsustainably low.

Over the weekend, Saudi Arabian Prince Alwaleed bin Talal said the world would never see oil above $100 again. In an interview with Maria Baritromo, the Saudi prince said Saudi Arabia and all countries “were caught off guard” with the fall in price, which he argues was not the result of OPEC strategy in 2014. He also defended Saudi Arabia’s decision not to cut oil production. “So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production,” Prince Talal said.

According to analysts at Goldman Sachs, oil remains overpriced relative to supply and demand fundamentals. In a note released to clients, the investment bank said oil should fall to $39 per barrel before the market normalizes. The bank’s six-month target for WTI futures is $39 per barrel, but it expects prices to rise to $65 in a year.

Strong Vehicle Sales 

Controversy remains over whether the fall in oil prices is a positive or negative for the U.S. economy, as the decline has hit hydrofracking and upstream production projects throughout the country. Some believe the fall could cause Texas to fall into a recession in the near term.

On the other hand, other economists argue that the fall in oil prices increases consumer discretionary spending and could add as much as 1% to GDP growth in the U.S., since about 70% of the country’s GDP relies on consumer spending.

The fall in oil may have helped auto sales, which are rising for many manufacturers. In 2014, Nissan saw car sales rise 11.1% and the industry saw a 5.9% rise.

Americans are also gravitating towards less fuel-efficient cars, according to a recent study by WardsAuto.com. The site said trucks and SUVs accounted for 52.1% of total vehicles sold in 2014, up significantly from 47.3% in 2009. The site also believes average fuel economy for light vehicles is falling, from a high over 25 MPGs in spring of 2014 to 24.7 MPGs in December, the lowest point since late 2013.

Earnings Season Begins

In the United States, publicly listed companies began their earnings season Monday afternoon, with expectations of strong results helping large-cap stocks outperform the market. However, all equities fell as fears of a growth slowdown overtook an optimistic earnings outlook.

Going forward, economists expect rising earnings for U.S. consumer facing companies to drive greater investor optimism, but concerns about deflationary pressures may impact stock prices even as earnings rise.