Thanks Jan. I was thinking of all the benefits as well. I am in PA. so I know it is hurting our fracking industry but I like paying less for gas.

Thank you for asking this question, richrobinson. I have been wondering if there were something I was missing when I read the alarming news reports. I think that 'low oil prices' are good. That means we can do more stuff with oil and then sell it at a cheaper price.

When people quote the 'cost' of oil from overseas, from Saudi for example, does that include the transportation cost to get it to the US?

Jan, not an economist

Hmmm. Prior email did not go through. Let me try again.

But isn't 'selling at their best price' exactly what the Saudi's should do. Why should they inflate their prices to the benefit of their US competitors in the fracking industry?

Jan

The retail numbers help prove your point. Holiday sales were weak and 2015 was the weakest since 2009. Not a good sign for the economy

The oil market has been manipulated for years. I hate to see our interests hurt but as you say this was inevitable.

This administration has made many enemies. I wonder if the Saudis are just being selfish or if their actions are retaliation for something Obama did???

I agree with you, Prof, and with Herb too: I would not put economic laws in the same class as physics, but they are closer to physical laws than they are to arbitrary man-made laws.

Your point about people believing that economics can be manipulated without an inherent 'cost' is well stated. Physical laws can likewise be manipulated if you take the cost into consideration (we can make a hollow hunk o'metal fly us through the sky, for example).

Thank you both for making valid points.

Jan

Great points. I hope we can avoid too much turmoil but a drop was inevitable.

the price levels that oil has reached will cause major problems for the energy industry...major layoffs and bankruptcy here in the u.s....overseas it will mean civil turmoil in middle eastern countries and aggressiveness from russia...world conflict...

...and oil is expected to drop further...the market is dropping with it...we have broken key support levels and a 50% drop like 1932...2000...& 2007 are on horizon...

Here in OK, we breathe the energy market, non-stop. The reality is that the profit point for shale oil is $36/barrel, while Russia can make some small profit at $24/barrel, and the Saudis can manage $13/barrel, as can Iran.

While the profit picture isn't good for the American suppliers right now, the important thing is maintaining the cash flow to cover debt and expenses. We have a glut of oversupply sitting in Cushing, OK, so releasing that supply to overseas markets will keep the cash coming in, for the short term. If the doomsayers are correct, and the price remains at $20 or less per barrel for the next couple of years, the industry will be in dire straits, unable to generate profit from their most productive wells.

While we like to think of the U.S. as primarily an industrial supplier of finished products, the reality is that commodities are still a major source of income. Oil, natural gas, coal, minerals, crops, and animal products are big export items, and a dramatic drop in demand for any of those items can put a big dent in our GDP.

With "friends" like the Saudis, we need few enemies, as their purposeful distortion of the market, generating oversupply against a shrinking demand is as damaging an assault on our national interest as a military strike. Ironically, the best thing for the U.S. right now would be a shooting war in the Gulf of Oman, stopping Saudi and Iranian oil delivery.

Physical laws are immutable. If they are changed somehow it would distort the very fabric of reality. Economic laws are not quite that strong. When they are misused they don't work properly but they can cause hardship to one group while benefitting another. Once that occurs they will cause the exact opposite of what the libs claim to desire, which is overall equity.

"Progressives" make the assumption that economics is an invention rather than a discovery. As such they believe that fundamental economic principals can be manipulated in much the same way as civil law. When you consider that most politicians are retread lawyers this should come as no surprise. The law is an invention and therefore subject to manipulation at will. Economics, however, follows basic principals
that are as real as the physical principals of gravity or thermodynamics. These economic principals are just as real as the physicals ones and just as difficult to thwart. The "law" of supply and demand is a simplified description of one of these principals. There are close similarities between economic models and those found in physics. Economic systems can be modeled as a recursive dynamic construct. Like the power distribution system it consists of a source, a means of storage, a means of delivery, and a network of loads, or consumers. In such a system it is the load that dominates performance by placing demands on the rest of the system which can either meet the demand or fail.

It's not just Obama that's enjoying Russia being hurt!

Good point!

But then If they don't do it, it will be harder for him to complain about it. The ability to complain is far more important to him than any reality.

actually it is astounding the number of products made from petrochemical by products.

because they had their chips on the wrong spot!

It's the inevitable end of conflating politics, both on a national and a global scale, and market actions. The laws of capitalism, most importantly markets punishing foolish transactions, are disregarded because too many politicians are invested in a positive income which they've talked up.

A sudden free fall in the price of oil is cause for concern. It indicates weak demand for oil. It seems like things are heading to the point where you might be able to give oil away. Keep in mind, in the past falling oil price would lead to increase consumption and that's not happening and that's what is scary.

Supply and demand doesn't work so long as government manipulation is involved in any way. Even in the slightest of involvement. It throws the nature of things askew and never accounts for peripheral damage.

I was always told that any plastic products we had were heavily dependent on oil as well. Now we are being told deflation is bad. Bad for government maybe...

That's exactly right. I keep waiting for the "deficit reduction tax". Since we are all used to paying 3 or 4 bucks a gallon anyway what difference does it make. Remember the Obama appointee who was a college professor and recommended 7 dollar a gallon gas? The free market would determine the price and anything between that and 7 dollars would be the tax. What an idiot.

Over time, all of us have tried to reduce our usage of resources to cut costs. I drive a KIA Soul instead of my Chevy Avalanche. My work is only 4 miles away from where I live. I use about 50% of the A/C that I used to, and I bought a pellet stove to heat only the rooms I occupy in my house. In our business we are constantly trying to cut usage of materials and labor. My electric bill is lower cause of the use of non-incandescent lights- on and on. But I still spend what I did several years ago, due to the hidden inflation that Obama has foisted on us. But my use of resources in real terms has declined.

Its lower demand, and thats not a bad thing for a limited resource. China has been our bit*& for awhile now. They have allowed the US government to print money without inflation like we had in the 70-80's. The chickens will come home to roost though. There is a big inflation coming here in the USA, or some sort of financial collapse,

There is no free lunch, and not in china either. Currently, prices for chinese goods that we buy have been falling. I buy for our company and I see the prices declining. Thats good for us.

if oil in general is not selling and that is causing the price to drop the effect also takes place on all products made from oil other than fuel, such as polyester. The amount of polyester made from oil by products in in the millions of pounds so the millions of pounds is reduced. The trickle down effect is under way.