The basis of this article is that the dramatic drop in oil prices stems from weakening demand due to investors' belief of a severe economic slowdown. Another statement in the article refers to oil now being correlated to the stock market. First, although the oil/stock market correlation debate seems to be ever present, the majority of actual studies you can find with a little research will show that this correlation has never existed. To say that this correlation now exists, based on a few short months of data, is perhaps jumping the gun a bit.
So let's get back to the weakening demand scenario. I simply want to ask a few questions that may put things in light. First, do you prefer buying your gas at $4.50 a gallon, or $2.50 a gallon? If gas is $2.50 a gallon versus $4.50 a gallon, will you buy less? Also, what will you do with the money you potentially save by getting your gas for half the price you were previously paying? Are you going to just throw that money away, or are you going to spend it on something else?
Now think of the price of oil from a company's point of view. Do you think that a company will purchase less oil, now that it is half the price it was three months ago? Do you think a company can realize higher profits if they have to pay twice as much for the oil used to transport and produce their goods, or half as much? Now that they are paying half as much, do you believe they will slow down production so as to limit their profits to match the cheaper prices of oil?
I could be wrong, but I believe the lower price of oil is good for both the producer as well as the consumer. If cheaper production and transportation, and increased ease of spending are recessionary, then lets all cross our fingers for a return to $147 oil.
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