While the 20 percent plus drop in the price of crude oil is attractive in the short-term I am concerned because oil prices are dropping below the actual cost of production. This will eventually put pressure on the world economy since the countries producing oil below the cost of extraction will have to borrow to cover their shortages.
I would argue that falling commodity prices are bad news. It
likely means that the debt bubble which has been holding up the world
economy for a very long–since World War II, at least–is failing to
expand sufficiently. If the debt bubble collapses, we will be in huge
difficulty.Many people have the impression that falling oil
prices mean that the cost of production is falling, and thus that the
feared “peak oil” is far in the distance. This is not the correct
interpretation, especially when many types of commodities are decreasing
in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford.
I am delighted to see that the price of oil dropping. The prices have been gouged for way to long. It is about time they bring them down as oil is readily available to be drilled in many untapped regions. While some may argue it is concerning, for the average consumer it is a much needed break.
Oil prices have been steadily increasing over the last decade and during that time all I heard was people complaining about how high the oil prices were. Now that oil prices have finally turned around and started dropping, which from my understanding was what everyone has been asking for during the last 10 years, people are complaining that they're concerned about the drop in prices. Personally, I think people are going to complain about the market no matter what it does, but as a consumer rather than a finance professional, I am happy to see a commodity that I rely on finally dropping in price a bit. It may not make the market makers too happy, but I think it will help the average American, and that's what really matters.