Oil Prices and the $165 Question

David Eckess

One of the noteable financial news stories heading into the Independence Day holiday is the continued drop of oil prices.  Since January crude oil prices have moved from $54.08 per barrel to a recent low of $42.06 per barrel, a remarkable price drop of approximately 22%.   According to various pundits declining oil prices are supposed to be bad for the stock markets.  A highly regarded professor of economics and the financial markets put the price drop this way, “this drop could put some pressure on earnings estimates in the coming quarter”.   Earnings pressure in the energy sector for sure, especially companies  with a fixed cost to extract oil from the ground.

The positives of lower oil prices far surpass the negative effects low oil prices.  The cost of virtually everything business and consumers come in contact with is impacted by oil prices. If you drive a car, the most obvious impact of changing oil prices is the retail price of gasoline.

We often hear about oil or gasoline consumption in terms of millions of barrels per day.  This is a relatively meaningless piece of information for most people.  Bringing this to Main Street, American drivers on average consume 656 gallons of gasoline per year.   A $0.25 per gallon price change for example, is $165.00 per year, per driver.  That $165 may not sound like a lot.  When multiplied by hundreds of millions of drivers, the savings at the pump during periods of falling oil falling can put $50 billion into the hands of consumers and the U.S. Economy.   When spent, those dollars produce upward pressure on non-energy related company earnings.

What will you do with the extra $165.00?

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