Cheap Oil Beats Obama as Economic Stimulus: Chart of the Day

By Mike Anderson

March 4 (Bloomberg) -- The cheapest oil in five years, a sign of the global recession, may deliver the biggest boost in purchasing power since at least 1980, Longview Economics said.

The CHART OF THE DAY shows oil spending will be about 2 percent of worldwide gross domestic production in 2009, down from 4.9 percent in 2008, Longview Chief Executive Officer Chris Watling said in March 2 report. Assuming an average price of $41.90 this year, the world is poised to save $1.72 trillion on oil compared with last year, Watling estimates.

“It’s a savings which is approximately three times larger than the entire announced 2009 fiscal stimulus of China and the western economies combined,” Watling said. “The savings from the fall in the price of oil will go straight into consumers’ and businesses’ pockets, will not be impeded by bureaucracy and will happen, unlike parts of the fiscal stimulus, which are likely to be delayed.”

President Barack Obama announced a $787.2 billion stimulus plan last month, with $185 billion allocated for 2009 to fight the worst recession in seven decades. The downturn that began in December 2007 will probably last through the first half of this year, making it the longest retrenchment since 1933, according to economists surveyed last week. The U.S. economy shrank at an annual pace of 6.2 percent pace in the fourth quarter.

Crude oil traded as low as $33.98 on Feb. 12, and the average price this year on the New York Mercantile Exchange is $40.71, according to data compiled by Bloomberg. That’s the lowest since 2004, when the average price was $38.57.

While London-based Longview forecasts “some strengthening” in prices later this year, even a 25 percent rally wouldn’t undermine significant savings on oil, Watling said in an interview.

To contact the reporter responsible for this story: Mike Anderson at manderson34@bloomberg.net