An Irony In Low Oil Prices

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When oil got over $140 a barrel, there were grave concerns that huge numbers of people could be put out of work. Airlines and auto companies could not afford high gas prices. People were faced with choosing between paying their mortgages or using their cars and trucks. Farmers and many businesses could not afford to put equipments into the field.

Now the economy has modest relief as oil moves under $50 and gas down below $2 a gallon. There can be nothing but good in that. High oil prices coupled with a slowing economy made for a poison stew.

The balance of oil prices may have gone so far from one side to the other that cheap fuel will hurt the economy nearly as much as high prices. Part of the problem is worldwide. Nations such as Iran, Russia, and Venezuela may not be numbered among the friends of the US. But, they could fall into very deep recessions if their income from crude continues to move down and stay down. The global recession has now means that failure of one economy sucks growth out of others. If these governments default on financial obligations, the credit system could be thrown further into chaos

According to The Wall Street Journal, "Schlumberger Ltd., the world’s largest oil-field-services firm by market capitalization, said its 2008 earnings will miss analysts’ estimates as oil and gas production slows world-wide." Those are code words for cutting jobs. And, there are thousands of other US oil companies, oil equipment suppliers, and drilling outfits that are going to face the same problem.

A boom then a bust. It appears to be an indicator that the economy cannot find equilibrium in any critical area. It is also a sign that the financial system could be hit by a worse crisis than the mortgage-related securities trouble since Venezuela has a lot of debt. The country’s Congress recently approved $393 million for debt service.

Douglas A. McIntyre