I just passed the gas pump and it was $3.15 per gallon at a 76 station in Malibu. It sort of took my breath away. It seems like years since I saw those kinds of numbers. I wondered how the markets were going to adapt to this new reality. If there is one thing that capitalism is good at, it’s at accepting the new low and trying to figure out how to game it. It wasn’t long before lots of new realities emerged.
All this was no surprise because The Wall Street Journal was writing about the drops in the price of crude oil from $110 a barrel not too long ago to a miserly $62 per barrel last week. What does this all change? Apparently just about everything.
-At that price, the average American consumer just got a bonus check for several hundred dollars.
-Retailers were once again licking their chops in anticipation of all this extra spending.
-However, the stock market dropped 300 points, from which I can only conclude that the stock market is much more concerned with the big players — or they are just running around in circles shouting the sky is falling.
-The Keystone pipeline bringing oil from Canada into the southern U.S. ports, the flashpoint between environmentalists and the capitalists, the litmus test of Obama’s guts, suddenly has become a “So what?”
-It may mean that the U.S. and Saudi Arabia, normally the closest of oil buddies, are now eyeing each other warily.
-Demand is slumping and a practically recessionary European Union, a Japan whose recovery was just getting hot is now suddenly getting kind of cool, and China, the master of the universe for the last few years, is seeing a definite slow down.
-So good, the old U.S.A. is once again looking like the 800-pound gorilla, so much so that even Republicans and the Congress will have to admit that Obama’s skillful handling of the economy brought us back to the top of the heap. Right?
-Oil producers Venezuela, Nigeria and Russia are suddenly in deep you-know-what. It was reported that Russia had an 8 percent inflation rate. It’s only a matter of time before we get back to the friendly glad-handing Putin who disappeared for a while.
Then there is some of the bad stuff.
-Some of those Arab countries keeping their people happy with oil dollars will begin to implode. I’ve heard talk that once crude prices drop below $80 per barrel they lose money on every barrel they pump, and the best part is that they can’t stop pumping without starting a revolution in their countries. So look for a few of them to be cleaning out their bank accounts or more likely coming to us with their hands out.
-Of course, I suspect some of our armaments industry-makers that sell those expensive war toys to all those countries are going to be somewhat hesitant to sell a lot on credit, so they’ll be back trying to raid the U.S. Treasury to pay for all those goodies.
-On the environmental front, sadly, some of that alternative energy stuff, including hybrid cars, is going to fall by the wayside because why take chances when oil is so cheap?
-It may even mean that booming oil states, like Texas and the Dakotas, now very cocky with shale oil dollars, are going to see some of those wells get very marginal, and a future not quite so bright.
Put it all together, it’s a very complicated picture, with some winners and some losers, and it’s hard to tell which is which. So I decided not to worry about it, and just enjoy gas at $3.15 a gallon since I can’t do anything about any of it.
Happy motoring.