What's going on?

The oil price sank to a 3-month low on Monday and continued to fall on Tuesday (down to about $43/barrel vs. a recent high of about $50) � and that�s reignited fears for stocks.

What does this mean?

Why is the oil price falling? There are a number of reasons, but signs of an oversupply of oil and the strong US dollar are two of the biggest. Gasoline inventories (a.k.a. the amount of gas/petrol waiting to be sold) are at a high level and US oil drillers appear to be starting to increase production again.

Also, the US dollar has strengthened relative to most other currencies and, because oil is priced in US dollars, that makes oil more expensive to non-Americans (and so puts downward pressure on the US-dollar price of oil � click here for a more in-depth explanation).

Why should I care?

For markets: A lower oil price has the potential to derail the stock market rally.
One reason that US stocks recently hit record highs was due to increasing investor expectations that companies would start making more money soon. A falling oil price could put a dent in that theory. As we�ve seen with companies like General Electric, when oil companies are making money, they spend money with other big companies (like equipment manufacturers). If they aren�t making as much money, that will probably hurt many other companies as well.


The bigger picture: The declining oil price could be a sign of weakening global economic growth.
The declining oil price can lead to fears that there is less demand for oil (since supply and demand influence the price). For example, perhaps the Chinese economic boost that occurred earlier this year, which led to�increased demand for oil from China, is tailing off. It�s not at all clear that demand has fallen recently, but the price decline itself will probably lead to such speculation.