If we look at the price of oil right now—below $50 a barrel—it was about six months ago that it was at $115 a barrel. We see this huge drop. Everybody knows you’re starting to see prices at the pump below $2 a gallon. The strange thing about it earlier in the week: the stock market plummeted with this news. It didn’t like it. So, we have to say: isn’t this good news?
Well, it’s good for some and not so good for others. The good news is that it’s really great for consumers. It lowers our expenses. It means we have extra money which we can spend on other things which is great for other businesses and typically good for the overall economy. It means lower transportation costs on all kinds of good and lower transportation costs for travel. We should see those airline tickets decline a little bit.
What’s bad about this? The price of oil is set by supply and demand. What we’re seeing is an economic slowdown in certain parts of the globe, in particular Europe, China, and that’s affecting the price of oil.
The price decline could result in something called deflation or falling prices. What could be bad about that? That stifles investment and lending and can keep our wage growth down so we’re not earning as much.
What’s really ugly about that? Well, if you own oil company stocks, you have seen the price of those shares decline lately. Those oil dependent economies that have done really well (like Texas and North Dakota) are starting to hurt. Those state economies are really suffering now. Certainly if you have a job in the oil business, you’re seeing slowdowns. You’re not working as much.
So, for some people it’s really good. We’re all cheering about the lower prices at the pump. But let’s not forget this could be not so good for the overall economy, and it could be not so good if you’re in the oil business.
We think the price is going to be low for a little while which is good news for most of us, but I think we’re going to see a bounce back. We need to see some improvements in overall economies; Europe in particular is what’s really dragging things down. If that happens, we’ll see that price go back up into the normal range. We think maybe in the $70 range would be a big jump from now.
Don’t spend all of that extra money (from the gas pump). Put some in savings right now, because certainly later on if we see those prices go back up, you’re going to need it.