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An oil-price collapse, its beneficiaries, and less inflation ahead

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Many brokerages, banks, and economic-research firms publish periodic newsletters on economic trends. As a service to readers, and without endorsing any particular views, the Monitor presents excerpts from some of these newsletters.

For the past three months, we have maintained that oil prices are not only likely to fall but are more likely to collapse than to decline sedately under OPEC control. Our reasoning has been as follows: Because the OPEC countries have such divergent interests, it is unlikely that they will be able to agree on a production-quota scheme that would be adhered to by any member. While some countries - notably Saudi Arabia, Kuwait, and the Emirates - have tiny populations and enormous oil reserves, others - especially Iran, Nigeria, and Indonesia - have large populations and smaller reserves. When it comes to limiting production and foregoing income, the latter nations believe that the Saudis and the other Gulf Arabs should make most - if not all - the sacrifices in terms of reducing production and foregoing income.

-Nakagama & Wallace Inc., New York

Aside from the obvious and immediate troubles of the oil exploration companies, it's hard to find industries that would not, on balance, benefit (from an oil price cut). The biggest winners among manufacturers would be the heaviest users of petroleum as feedstocks for their final products. These include producers of chemicals, plastics, paints, and fertilizers. Among the service industries, transportation - especially airlines and trucking - stand to gain the most. And then there are sectors that stands to benefit because they produce substitutes for less-energy-intensive goods. A case in point would be vinyl siding, the relative price of which should fall and give it an edge over clapboard in terms of market share.


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