#527. The Price of Oil

Posted on | The Agurban

The Price of Oil

What is certain about that price of oil is that nothing is certain. Just google “what affects the price of oil”. In 0.52 seconds, google returned 84,900,000 results. I have not read them all.

As consumers, we generally like low oil prices because it generally means lower fuel prices for both our cars and our homes. That means we might have a few extra dollars each month to put back into the economy for other items, i.e. eating out, new appliances, new clothes. We could even save it.  But what we don’t like is what lower oil prices are doing to our 401(k)’s and other stock accounts. (Remember the law of unintended consequences?? Well, here is a prime example.)

We have been very interested in the latest oil boom involving horizontal hydraulic fracturing, or fracking, as a means to extract more crude from the earth. The United States is now a major player in the crude oil market. Even with the drop in oil prices, production in the U.S. has held steady. The Energy Information Administration explains this: “when oil companies start idling their drilling rigs, they generally start with the older, least-efficient rigs first. That’s then offset by output from the remaining rigs, which are in the most productive, oil-rich regions.”

Of course there are many other factors that affect the price of oil, most of which are beyond our control or influence:  the spiraling conflict in Yemen, the U.S./Iran nuclear deal, weak growth in China, etc.

We will continue to watch the ever-moving price of crude oil and monitor its effect on the economy.