Monday, December 1, 2014

What The Drop in Oil Prices Mean

Oil prices are collapsing and that will change things.

Countries like Russia, Iran and Venezuela are finding out that fortune quickly turns to misfortune, when your economy depends overwhelmingly on a single natural resource.  Similarly, areas of US economic growth -- Houston, for example -- may be in for a time of anxiety.

Decisions made at $ 110/bbl look problematic when oil falls below $ 70/bbl.  It is not all good news.

The main recipients of good news are oil consumers -- which includes most folks.

But decisions made that depend upon incorrect future information destroy resources.  Think about investments in "alternative energy." Are these investments worth anything at the current barrel price of oil? Wind and solar energy look even more ridiculous now than they did just a few months ago.  How about "energy efficient" transportation?  The government's subsidies of "alternative energy" can now be characterized as money poured down the drain.

For an economy as weak as the current US economy, the struggles of the oil industry could put a huge damper on the economy.  The only bright spot -- technology -- could be threatened by the demonic regulatory agenda of the Obama administration.

Meanwhile, Europe is weakening and the emerging markets are getting crushed.  Not a pretty picture.

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