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Yesterday my local gas station was selling regular for $2.81/gallon. It's been quite a long time since I've seen it that low. So what's going on?
News reports say it's a combination of increased US production (fracking), more stable production in places like Iraq and Libya, and reduced demand in Asia.
What does it mean?
Cheaper oil is bad for countries like Russia and Venezuela. Putin is surely unhappy about it. Maybe it will be a factor constraining his aggression in Ukraine?
Cheaper oil is really good for consumer economies like the US. Reports are out predicting as much as a $1 trillion stimulus effect in the US if the low prices are sustained. Could translate to a strong retail season as Christmas approaches.
Europe, meanwhile, is worried about deflation. Cheap oil ripples through other commodities, making everything cheaper..and Europe was teetering on deflation already before oil dropped. So much for the austrian economists predicting hyperinflation every year since 2008.
And the stock market. Wild swings this week. I think the Dow was down 4% within a span of hours last Tuesday. Thankfully it recovered. Are investors spooked over Ebola? No, probably has more to do with concern about Asian growth slowing. I would think, however, that cheap oil would negate this. Then again, it was primarily the big oil companies' stocks dragging down the indexes.