Giving Thanks

Fellow prole Matt wrote,

Can you take some time to explain the recent drop in gas prices?  Is this a reflection of the economy or are the big oil companies simply throwing us a bone before Christmas?

 

Matt,

Big oil will never throw you a bone.  They might pick yours clean, but they’ll never throw you one. 

 

We’re in the midst of an economic crisis not seen since the Great Depression (the only reason it doesn’t feel like it to you and I as we go about our daily lives is because the government is literally printing money and giving it away).  There is a widespread panic that the recession will turn into a global depression, which would drastically reduce the demand for oil.  Also, with stock markets plummeting on every continent, people are selling everything they can and buying U.S. dollars.  This is resulting in huge dollar strength.  Since oil is priced in dollars, if the dollar strengthens oil will weaken.  These are the two main reasons oil is falling.

 

Fellow prole Tymothyson wrote,

Are they trying to keep us from giving up on gas-driven products?

 

Ty,

I love your cynicism.  Well done.  The Saudis along with big oil aren’t too concerned, that’s why they haven’t taken drastic measures to stem the decline.  If oil were to stay where it was, at $150, then people would start looking for alternatives.  However, now that there has been such huge price volatility, if oil does go back to $150 people won’t be as motivated to search for another viable energy source because they’d think the rise in price would only be temporary and would soon return back to $50 or lower.  That is when it will not stop at $150 but continue higher.  The Saudis won’t mind that.