Why has the price of oil fallen so much recently?

Three things have contributed: first, due to their slowing economies, demand has fallen in China, Japan, and the EU. Second, oil production has increased here in the US so we are importing less. And third, despite sluggish demand worldwide, Saudi Arabia (the world’s biggest producer) has not slowed down exports. All these factors mean that the world temporarily has more supply than demand, and this has naturally forced down prices.

You may have noticed that this has benefited American consumers, and has lowered many costs for American businesses. On the other hand, it has strengthened the US Dollar relative to other currencies, making American exports less competitive. Some companies with a global presence are hurting, and individuals may be finding evidence of this in their investment portfolios. Such conditions are not likely to improve until the dollar weakens.

So what will happen next? Some economists expect the price of oil to remain relatively low for the next year, possibly two years, before climbing again as US production falls. That one or two years will seem like an eternity though for many fossil fuel companies. Fueled on credit, the industry expanded rapidly over the past several years. With the price of their product halved some fossil fuel companies may now find it difficult to meet the terms of their enormous loans, and this may leave their creditors in a very difficult place. Economists therefore warn of a potential crisis in the banking industry again, which of course would have further ripple effects on the economy overall. Are you prepared for another credit crunch?

With prices so low, oil companies are pulling back from ocean drilling and other high-cost, low-return projects. This will contribute to a slow down of supply, and in one or two years the temporary return to familiar territory of our supply:demand ratio and price. What should us individual and business consumers do? Rather than plan our future around a volatile past, the savvy among us will build foundations for the future on reliable economic theory and solid science.

Worth considering:

How would gasoline at $1 per gallon impact you or your business ten years from now? How about at $10 per gallon?

How would another banking crisis impact you or your business two years from now? How about ten years from now?

National Potato Chip Budget

The Occupy Movement has helped raise awareness that while we all pitch in to create our nation’s wealth, a very disproportionate amount of that wealth is amassed by just 1% of our population. The remaining 99% of us could benefit if that wealth were more fairly or evenly distributed. There are plenty of ways to debate how and if that might be accomplished, and in the mean time we all seem to have fallen back into our uncomfortable reality. We know things aren’t right, but the problems seem too big to address. We know things need to change, but we’re not sure how. Finally today there is an answer that doesn’t involve chaining yourself to a street lamp downtown. Something in the paper caught my eye this morning; it led me to a little research, and – if the figures are right – we can make some big advances in some of our society’s biggest problems right now.

Our country spent decades building the unsustainable economy that led to this 1% vs. 99% mess, and we’re only in our fifth year of putting things right. We’re still taking the first painful steps to correct our system, many of us clinging to the old familiar ways, and finding it very difficult to adjust. Rates of unemployment, homelessness, food insecurity, and lack of healthcare are at historic levels. But among all those statistics, some other rather odd ones stand out. The official unemployment rate for June was 8.2%. The other 91.8% of us have apparently been looking for creature comforts during these worrying times: sales have been surprisingly strong of little luxuries such as fatty, salty, sugary snacks, all types of alcohol, and bottled water. Here are some industry annual sales figures:

Potato chips, corn chips, and similar snacks $24.6 billion
Cookies $4.8 billion
Crackers $4.6 billion
Doughnuts (just the top ten brands) $563.4 million
Beer, wine, liquor $59.2 billion
Soda $18.7 billion
Bottled water $6.3 billion

Even during these difficult times, annual industry sales for just these seven product categories total $118.7 billion, just below the entire GDP of the nation of New Zealand. As defined above, the money we spend each year on junk food, booze, and plastic bottles of tap water alone would qualify as the 66th largest economy on Earth. How can we be doing this while people in our own neighborhoods are losing their homes and going hungry? We’re supposed to be the 99%, but we’re acting suspiciously like the 1%.

You’re probably thinking what I thought: first, this really makes us look pretty ridiculous. Second, to be fair though few people realize that our collective snacking adds up to so much. And third, why are people hungry, homeless, and in need of healthcare when we, the 99%, are budgeting 118 billion dollars of our own money towards Doritos and Budweiser?

Politicians waste our money, time and other resources endlessly arguing about budget cuts, so let’s stop waiting for them. Let’s start making some cuts of our own. First on the list: let’s reappropriate some of that 118 billion dollars from our potato chips and doughnuts budget to a new budget: one of healthy food for donation to a food bank. Here’s the plan: go one day a week without the luxuries listed above. One day is 14.3% of your week, and 14.3% of a $118 billion budget is $16,874,000,000. A sudden influx of 16.9 billion dollars to our nation’s food banks would make quite an impact! It won’t address the causes of food insecurity, but would definitely ease the symptoms – and we will all be healthier for it.

While people in our own neighborhoods are going hungry, can we go one day a week buying cans of beans instead of cans of Coke? I think so too. Here’s where to drop them off: