Crude Oil just dropped into the 20’s. That’s $29 per barrel. Don’t think it’s hit bottom. The real value currently is around $17, so the trading value is likely to come down to at least that if not overcorrect and go to $16 or lower.
Why is cheap oil a bad thing?
Cheap oil isn’t bad for those driving long distances. Truckers and vacationers love the cheap travel. They should. Cheap oil has brought us gas in the $2 per gallon range. Cheap oil has helped everyday consumers and the middle-to-lower classes have a little extra money in their pockets.
More money for us poor folk is a great benefit of cheap crude oil.
Let’s look at the down side.
If you look at charts of production costs of oil from early 2014, you will find that oil costs were above $30 per barrel for almost all countries in the world. Many, countries had production costs of $70 per barrel, and the most expensive countries had production costs well above $100 per barrel.
Now look at production costs from early 2016. You will find those same countries have all dropped down to crude production costs of as low as $8 per barrel.
Isn’t that great? They’ve found ways to produce oil for cheaper!
Hmm. Not so good if, … well, ….
In any company there are expensive ways to produce and inexpensive ways to produce product. It’s an easy guess that you can get oil through traditional pumping cheaper than from tar sands. So, any expensive oil production modes and their workers stopped.
Also, in any business the most expensive cost is employees, so many employees not directly producing crude got or are now getting the axe.
Finally, environmental safety is expensive. Don’t think for a second that a company that has to produce oil for $17 per barrel instead of $140 per barrel isn’t going to quietly (and maybe unintentionally) cut some safety corners.
Let’s focus on jobs for now. Do we care if oil companies cut jobs? Won’t that make the world greener? What about the construction workers and restaurant owners that used to get their incomes from those pesky oil company employees? Yeah. They loose their jobs too, because the oil employees lost their jobs.
Now think of all the suppliers to the companies that sold goods and services to the oil employees. See the trickle-down affect?
So how big of a chunk of the economy is affected by oil employee layoffs? It turns out a large chunk of most of the world’s economies are affected by the oil industry. In fact, the only part of the USA’s economy and many other countries’ economies that hasn’t been in recession or depression for nearly the last decade has been oil and all the support industries surrounding oil. With the last economic pillar gone from our economies, we’re about to see the real state of the local and global economies, and despite what popular politicians and the main stream media claim, it ain’t pretty.
In the USA, less people as a percentage of the potential work force are working than at any time since the 1970’s. That means, whether they know it or not, most people alive have not seen economic times worse than this in their lifetimes. We haven’t felt the full impact of this economy for many reasons. The biggest reason was the booming oil economy.
In short, a lot of people are going to lose their jobs. The multiple bubbles in stocks, bonds, student loans, housing, and auto loans are all going to come crashing down. 2008 and 2001 were nasty, but didn’t affect everyone. This one is going to affect everyone.
Welcome to 2016.
Just a reminder. In 2008, the credit system nearly melted down. About half the companies in the USA pay their employees by using their credit lines as an advance on sales they expect to happen over the next two or three weeks. If it had melted down completely, most Americans would have been working for free for weeks or even months. 2016 is shaping up to have just that kind of meltdown.
It might be a good idea to have enough savings to last a couple of paychecks in case your employer doesn’t fire you, but can’t pay you immediately.
Obviously there are many factors building up to an economic meltdown, but this time one of the last factors is the collapse of the price of oil. Cheap oil leads to more money in our pockets, but cheap oil helps with the impending economic crash and credit collapse. That means hard financial times for the common man.
Less money for us poor folk is a bad benefit of cheap crude oil.