Take a Long-Term Perspective on the Oil Downturn

The oil industry is experiencing its deepest downturn since the 1990s: the price of a barrel of oil has fallen by more than 70 percent since June 2014, and that’s affecting oil companies.

Their earnings are down, so they’re cutting back on exploration and production. Many have gone bankrupt, and an estimated 250,000 oil workers have lost their jobs. Globally, whole economies are impacted, such as Ukraine, which was relying on a now-canceled $10 billion Chevron project to help stimulate its troubled economy.

When are oil prices likely to recover? Many say not to expect a recovery anytime soon. Oil production is not declining fast enough in the U.S. and other countries to drive up prices. So it could be years before prices return to $90 or $100 a barrel-the norm over the past decade. So what does that mean for you as a consumer?

Gasoline, heating oil, and natural gas prices have fallen. Airline and shipping costs may follow. That means more money in your pocket, and benefits for the economy. According to the International Monetary Fund, a 10 percent decline in the oil price is associated with around a 0.2 percent increase in global gross domestic product as consumers spend their gains.

On the downside, the financial markets are rattled, and that can hurt your portfolio.

In times like these, it’s important to remember that investing is about taking the appropriate view for your particular time horizon. And if you’re saving for a distant retirement, that means adopting a long-term perspective.