Oil crash could be coming: what effect would this have on the economy? (companies, taxes)

[bchris02]

Elliott Wave

If oil did crash to $16/bbl, what effect would it have on the economy? Lower prices would be a boon for consumers as $16 would bring back $1 gas in many parts of the country, but it could be a major disaster for energy companies and refiners. Thoughts?

[Skydive Outlaw]

Originally Posted by bchris02

Elliott Wave

If oil did crash to $16/bbl, what effect would it have on the economy? Lower prices would be a boon for consumers as $16 would bring back $1 gas in many parts of the country, but it could be a major disaster for energy companies and refiners. Thoughts?

State and federal taxes on gasoline already exceed $1 a gallon. So the only way that $1 gas in many parts of the country could exist would be if the oil companies were giving it away for free aside from the state and federal taxes on it, because the government will always figure out a way to make money on oil. (and way more in terms of taxes than the oil companies make by refinining and bringing the product to the market).

[Escort Rider]

My thought is that the chances of crude oil going as low as that "analyst" predicts are pretty much zero. Therefore, I will not speculate about the consequences of something which is not going to happen. I put "analyst" in quotes for a reason.

[bale002]

Originally Posted by bchris02

Elliott Wave

If oil did crash to $16/bbl, what effect would it have on the economy? Lower prices would be a boon for consumers as $16 would bring back $1 gas in many parts of the country, but it could be a major disaster for energy companies and refiners. Thoughts?

That would imply, just guessing, a 25% unemployment rate not only in Europe, where it already is practically 25% in a few countries, but across all the major industrialized countries, including the US and China, basically a global depression.

As I have been pointing out for the past 18-24 months, the global economy faces an energy constraint: when growth reaches a certain level, energy (oil) prices rise, slapping it back down, then allowing the economy to return to modest-to-moderate growth overall.

Right now we are in a slap-down phase, accompanied by monetary contraction in Europe. Not too sure, just guessing that around $60 per barrel would be low enough to spur a rebound to modest-to-moderate global growth, maybe after the US elections later in 2012.

The current price of around $80 per barrel could have been enough, but the monetary contraction in Europe has added a further constraint right now, so in that sense I agree with article on the fundamentals: the eurozone monetary contraction is a new factor over the past two years which has increasingly deteriorated, and no relief in sight for as long as no-one in Europe knows who is sovereign, who is the lender of last resort, and the rate of the slowdown in growth or recession is steeper than the money supply contraction.

Another factor is geopolitical tensions in the so-called Middle East, mainly Syria and Iran right now.

Too much uncertainty right now, as always, to be sure of the future.

Nonetheless, $16/bbl seems like a technical exaggeration and an around 25% global unemployment rate also seems unlikely.

But I suppose that we can't rule it out either: we could be on the cusp of an unwinding of both the eurozone and globalization. As usual, hedge your bets.

Good Luck!

[Pruzhany]

The last time it dropped to around $40 was in late 2008/early 2009. The only thing that went down in price was gas. No one else passed the savings onto us. Companies that charged us service charges continued charging them. Tire prices didnt drop. Food prices continued up. Nothing came down except for gas and fuel for our homes. And even today as prices are dropping at the pump, prices (and shrinking packages) are still going up.

State and federal taxes on gasoline already exceed $1 a gallon.

Only on the westcoast. On the eastcoast it runs from about 0.20 in the SE to about 0.60 in the NE.

[Pammyd]

Originally Posted by bchris02

Elliott Wave

If oil did crash to $16/bbl, what effect would it have on the economy? Lower prices would be a boon for consumers as $16 would bring back $1 gas in many parts of the country, but it could be a major disaster for energy companies and refiners. Thoughts?

Gas here in CT has dropped in some places to $3.46 per gallon which I thought has been HUGE since last week. I went to the market at say 9:00 am and when I came out of there at 10:30, gas had gone from $3.59 to $3.46 it was amazing. I think if it did drop to $16/bbl it would be good for people but super horrible for all the refineries. I am not all that saavy with this stuff but can't help but think that the Mom and Pop oil delivery companies are going to suffer far worse than any larger companies. What do y'all think?

[pvande55]

A sudden drop in the value of fuel-efficient cars. Sales of SUV's skyrocket. Economic depression in North Dakota. States might raise gasoline taxes, allowing roads to be repaired. Similar things happened in the 1980's.

[Chango]

Originally Posted by bchris02

Elliott Wave

If oil did crash to $16/bbl, what effect would it have on the economy? Lower prices would be a boon for consumers as $16 would bring back $1 gas in many parts of the country, but it could be a major disaster for energy companies and refiners. Thoughts?

If oil prices crashed to 16 bucks a barrel and stayed there, we would go into a boom like you've never seen in history.

Everything is tied at least indirectly to energy prices and insanely cheap energy is the drug America craves most. But it ain't gonna happen thanks to global growth and Hubbard's peak.

[bchris02]

Originally Posted by Chango

If oil prices crashed to 16 bucks a barrel and stayed there, we would go into a boom like you've never seen in history.

Everything is tied at least indirectly to energy prices and insanely cheap energy is the drug America craves most. But it ain't gonna happen thanks to global growth and Hubbard's peak.

The high energy prices we've seen over the past five years are directly tied to a weakening dollar and speculation of strengthening demand from China and India. If economic growth in Asia slowed or even went into a recession, $16 oil is feasible. The euro is in trouble and that is certain to put downward pressure on oil prices. It went to $30/bbl in late 2008 after the stock market crash. There is a supply glut even as we speak, its speculation keeping the prices high. I think the range of $50-$80 is the sweet spot for oil prices. Its cheap enough that its not pinching consumers and businesses but expensive enough to not decimate the energy sector.

And no, even with $16 oil many parts of the nation won't see $1 gas, but places like Oklahoma and Texas would. In early 2009, I remember seeing gas as low as $1.29 in Little Rock and that was at $30 oil.

[SOON2BNSURPRISE]

California charges 35Cents a gallon for Gasoline and 15.2% of the sales price in taxes.