Hypothetical Question: if crude = $35 next week, would that fix the economy?

Discussion in 'Economics' started by Happy Hopping, Dec 11, 2011.

  1. Say in a hypothetical scenario, next week some time, oil dropped to $35 and say it stays there for the next years to come:

    1) Would that fix the global economy, or at least the US economy?

    2) Would that boost consumer spending?

    3) Should the lower crude oil price reduces costs of most manufacturing, jet fuel, even toilet paper? And how does that affect he US economy in a positive way?
  2. 1) No.

    2) Maybe.

    3) Probably. It will make prices fall and demand rise. In theory.
  3. I think the real question should be if the price of oil fell would the consumer see the benefits or would the producers and energy companies still charge the same price?
  4. the increase in the the price of crude was never fully passed on to the consumer with the exception of RBOB. First the transports sucked it up, then were forced to pass it on to shippers who finally had to pass it on to receivers. When you think of all the crude that goes into a box of cereal it is quite staggering. That shit they spray on the fields are petro chemicals, and those combines don't run on water. Getting if from the field to your breakfast table is just crude, crude, crude. The consumer acted like it was a big deal when General Mills increased the price of a box. Increasing the price to the consumer is the last thing that happens after everybody else before that takes it in the shorts.

    Economies don't change in a week. If the market is up on Monday and down on Tues that doesn't mean Mon the economy was good and Tues it was bad, but confidence changes just that quickly. If crude went to 35 fast it would probably mean that confidence dropped that fast.

    stable $75 crude would have a dramatic impact on economies world wide. And really it's not the price, it's the stability that means so much. It means so much that we are willing to kill for it.
  5. bone

    bone ET Sponsor

    Crude at $35 would reflect expectations for very weak economic demand. The positive correlation between equity and energy markets is substantial - greater than 90 %. The fundamentals are heavily intertwined and mutually reliant.

    So, no, it would not "fix" the economy per se. It would signal armageddon.

    Did you know that the U.S. has become a net exporter for refined gasoline ? Many hydrocarbon experts privately admit that due to "fracking" and shale exploitation technologies, combined with Gulf Coast refining infrastructure to crack high sulfur Mexican PEMEX imports - these are really dramatic developments recently introduced in the continental U.S. and Canada, and current thinking has evolved into the premise that America could conceivably survive a dramatic cut in supply from the Middle East ( read between the lines: Iran ).
  6. "Fixing US economy" would also include a BIG jump in employment... nothing like that on the horizon (or even in the imagination of the politicos).
  7. If it is to $35 because a ginormous supply of cheap oil is discovered, then yes, it will help a great deal. We know this (more or less) for certain, based on the last 50 years of history.

    If it is because demand destruction from a global recession - not so much.

    And $15 would be better than $35.
  8. If not, I'm sure federal and state/local gas taxes would be raised to offset the wholesale price. The dirty little secret is that the politco's will make alot of noise about the consumer driving more fuel efficient vehicles, but in reality the government at all levels is entirely dependent upon the huge tax flows from the gasoline taxes. Not all that different from the offical policy towards cigarettes while they've taxed the hell out of them.
  9. ronblack


    No, the opposite will fix the US economy. Oil going to $200. Only then China will not be competitive and jobs will return to US.
  10. US apparently imports 12 million barrels a day.

    Price diff between $100 (current oil price) and $35 is $65.

    $65x12 = 780 million dollars a day.

    = 285 billion dollars sucked out of the US every year.

    That is a huge amount of money.
    #10     Dec 11, 2011