Wednesday, January 21, 2015

Three Cheers

(January, 2015 USA Today photo)
Oil has fallen from $100+ per barrel to under $50 today. At first glance the drop in the price of this modern necessity is like cheap (and plentiful) food, clothing, and shelter: a great boon to humanity.

So why aren't the markets cheering? Two reasons [bold added]:
First, China is now the world’s second largest economy and its most voracious energy consumer–and its economic slowdown has dented oil demand. Given that China has provided the majority of global growth since the 2008 financial crisis, Wall Street is spooked. The benefit from falling oil prices for U.S. consumers and companies may well be somewhat offset by a slower China, given that so many American businesses depend on sales in the Chinese market.

But there’s another factor at play. Plunging oil prices are pressuring the American shale-oil and -gas producers responsible for the domestic energy boom–which comes with its own ramifications for the economy. Shale oil is relatively expensive to get out of the ground; much of it requires prices of around $70 a barrel to be economical.
There's a third factor at play: according to the cognoscenti's current consensus, cheap gas encourages more carbon-based energy consumption that would accelerate global warming and ocean acidification.

As for me, I can't take the latter seriously until the let's-do-something-about-global-warming types stop flying around in private jets (H/T Glenn Reynolds).

Two dollar gas? Hip-hip-hooray!

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