The kneejerk reaction to lowered crude is that its a positive for consumers. Under normal circumstances, that is true. But int he current environment, well, not so much.
The drop from $147 to $110 or so was demand destruction, as Americans drove less miles, stayed closer to home, consumed less. It is a classic case of high prices being the cure for high prices.
But the recent acceleration of the price drop in commodities is a reaction to a variety of macro factors. Ike being less bad than expected is certainly part of it, but there’s a lot more to it than that. The collapse of Lehman Brothers, the BA/Merrill merger, and AIG’s crisis are all huge credit negatives.
They imply further economic dislocation due to a tightening credit availability, and other related problems. In my mind, that’s why Oil is selling off — expectations of further credit dislocation and economic contraction.
Your mileage may vary . . .
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Crude Oil Almost Down to $92
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