Economics: Oil Price - Back To Normal!

 (Drivebycuriosity) - There is a lot ado about the recent crash on the oil market.  But the chart above shows that the price of oil fell just back on the levels of the 1990s. Brent Crude, the international gauge for oil, is now trading around $20, like in the period 1985-2000 ( tradingeconomics ). Low oil prices in the 1990s fueled a period of dynamic economic growth, Bill Clinton`s economic boom run partly on cheap oil. Climbing oil prices slowed economic growth in the decade 2000-2010 and the oil price spike from 2007/08, when the price of oil tripled, preceded the big recession of 2008. Decades with cheap oil are prosperous, decades with expensive & volatile oil (like the 1970s and the 2000s) are not.  "

There are 2 reasons for the return of the oil price to the long term level, the normal. The rise of US oil production, thanks to fracking, which lifted the global oil supply, and the plunge of the demand for oil, caused by the lockdowns as a reaction to the COVID-19 crisis.


The return to cheap oil is a huge stimulus economic program - additional to the $6 trillion stimulus packages by the US government and the Federal Reserve - and helps to mitigate the carnage caused by the cornonavirus & the lockdowns. So far the demand for gasoline did not drop to zero in the US. The Energy Information Administration (EIA) reported that the weekly US gas demand decreased  to 5.1 million b/d (aaa). This time last year, drivers were using about 9.2 million barrels a day of gasoline (cnbc). According to these numbers about 60% of the economy is still burning gasoline and is already benefiting from cheaper energy!


Dropping prices for oil & gasoline work like a tax cut. Consumers worldwide have more money to spend for other goods & services. So cheaper energy prices stimulate consumer spending which accounts about 70% of the US economy. Dropping energy prices also translate into lower transport costs - thanks to cheaper Diesel - helpful for the still running supply chains for food and other necessary goods. The sharply falling energy prices are curbing inflation and reduce so the risk that the $6 trillion stimulus programs (government plus Federal Reserve loans) could lead to a hyper inflation.


As long as oil will stay cheap it will fuel the recovery in the 2nd half of the year.