Low Gasoline Prices: Good or Bad?

The price of crude oil has dropped lately, and the gap between Brent and West Texas Intermediate prices has narrowed as well. Around here the price of gasoline at the pump has dipped to $3.05 per gallon – down from $3.33 a year ago.

So naturally there must be a conspiracy.

The first theory is that in addition to economic sanctions, the US is trying to punish Russia with lower crude prices. If so it isn’t working. Thanks to those sanctions the ruble is lower, too. Russia earns dollars selling oil abroad but spends rubles at home, so as long as they can exchange currency they are doing OK.

A second theory is that the market as a whole is purposely allowing deflation so as to convince the Federal Reserve to continue Quantitative Easing (Free Investment Money) past the stated expiration date. Usually speculators are accused of raising oil prices, but now they are accused of lowering them, too.

A third theory is that the Kingdom of Saudi Arabia is trying to punish Obama for his inaction in Syria and overtures to Iran and Qatar. Because it is always Obama’s fault.

A fourth theory is that the Kingdom of Saudi Arabia is trying to assert itself as swing producer against America’s oil-fracking boomlet. I doubt KSA are gullible enough to believe that the fracking bubble will last much longer.

A fifth theory is that the Kingdom of Saudi Arabia is tired of losing money by keeping the rest of OPEC in line. While it is in OPEC’s interest to keep prices high, it is in each member’s interest to lower prices a bit and sell more crude. As swing producer, KSA can increase or decrease production to maintain prices – but that also means they have to forego some profits here and there.

The fifth theory makes some sense to me, but I also think that deflation is really happening in that usually unmentioned sector of the economy that is still out of work. Yes some folk are buying Porsches and Teslas and iPads like times are good, but more and more families are making meth in the basement, too.

So while admit that I like paying less for gasoline, I suspect the human cost is quite high.

2 responses to “Low Gasoline Prices: Good or Bad?”

  1. martinschwoerer says :

    Here’s a pretty smart guy who says there is a sixth theory: The US and Saudi Arabia are working together for lower oil prices, with the intention to hurt Putin.
    http://seekingalpha.com/article/2566025-dealing-with-the-twin-gluts-of-market-correction

    Like

    • Donal says :

      Unfortunately I could only read the first page before being required to sign up with Seeking Alpha, but let’s call that theory: 1A.

      Like

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