One of the notable
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. One 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?
