Why Is Everyone So Worried About Oil?

Posted: August 12, 2015 in Business, Farros, Oil, Royal, Technology and Business

Falling oil prices give me a sense of comfort that current economic growth can continue.  Why?  Because that means the cost of everything is less, which means we can all buy more.

In contrast, everything I’m reading about oil — yet again — is negative… everyone seems to think the decline is somehow bad for the economy.

Huh?

Finally, I just read something from someone who has articulated the benefit of falling oil prices rather nicely:

Forget quantitative easing and low base rates, the REAL great global stimulus—tumbling prices in commodities and, most importantly, oil— continues and it’s hard to see what’s going to change any time soon.

This huge transfer of wealth from commodity producers to consumers has shown little sign of abating despite a brief spring rally off the lows, which are once again being challenged in products from copper to iron.

If consumers are the bulk of GNP… essentially the engine for commerce in the world… why is it so bad that we have more money in our pockets to spend?

Seems like that’s a good thing for corporate profits, too.

P.S.  Stephen Sedgwick’s article was really about, “why it might be different this time”… meaning conditions that are contributing to lower oil prices today really are different than in the past… essentially the world has a lot more production capabilities… and new sources of oil (shale)… and that in turn is driving a completely different attitude about holding on to marketshare... i.e., a real live price war.

HOWEVER, what I also love about this article is Stephen pointing out the contrarian view… that is everyone is so convinced that oil is going lower — as they were a few years back when oil was raging above $100 and everyone was absolutely convinced that it was going to keep going higher — that something is bound to happen to change everyone’s thinking.

Could be something as simple as OPEC realizing they have a scarce commodity and that it might be better to sit on the sidelines — even for a very short while?  That alone would probably increase oil prices by 20%-50% seemingly overnight.

BTW, I think we’ll have to be staring at the real possibility of a 2 handle on crude oil before anyone flinches… it really may be an incredibly high-stakes game of “chicken” after all!

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