At Least Oil's Now Below $69 A Barrel

The hidden story in the economy is the fact that oil prices have collapsed. For the Sheiks in the Middle East and Vladimir Putin, this is bad. For people like you and me, it's great.

Oil continues its drop from over $140 this summer to under $60 today.  The prices has not been this low since March of 2007.  The drop is one of the best forms of stimulus for a battered economy.  At the pump, gas is already under $2.40/gallon and I imagine it will drop into the $2.10 range in the next couple of weeks.  Gas below $2 is even conceivable.

The drop also shows you how overdone things can get.  Back when oil was soaring, the smart crowd said we were running out and that the fundamentals supported such a price.  I never believed it.  Remember the fundamental law of markets - when things get so bad in one direction, it's getting close to turning around.  Is that true for the overall economy?  Probably not yet.  But some pieces are moving into place to set the stage for an eventual recovery.  The drop in oil prices is one of them.  The collapse of inneficient and poorly run enterprises would be another step in that direction, if only the government would let it happen.  Instead, I fear we will see a crop of zombie companies born, barely alive and sucking the lifeblood out of any true attempt at a recovery. 

But for the moment, let's be happy with cheaper oil.  But let's also remember that eventually oil will go up again and that a low price should not hamper efforts to find alternative energy solutions.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • ktexas

    November 12, 2008

    I've seen gas selling for $1.94 a gallon here in Texas.

    That's a good point about Zombie companies. Seems like the government bailouts may prevent a severe and short recession, but instead it'll create a moderate and long recession.

  • JRodgers

    November 13, 2008

    While seeing Putin and Chavez put in their respective places is good, lower oil prices are nothing to celebrate. As you point out, they interrupt trends towards greater efficiency and lower consumption. An industry built on finding alternatives sets the stage for an economic recovery. Lower prices in and of themselves contribute to the consumption culture that got us into this mess in the first place. It would never be popular, but our government's best action would be to continue to tax energy as if oil were $145 barrel.

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