Today was a perfect example of just how skittish the markets are. OPEC has proposed cuts to oil production in order to hopefully push prices higher. This news did send oil prices 5% higher initially before some of those gains were lost. There are many questions surrounding the deal.
First off it doesn’t include several powerful oil producing nations such as the US and Russia which aren’t a part of OPEC. There is also the question of whether each OPEC nation will actually follow the agreement. Then there is the even bigger question of whether this deal will even matter. Higher prices and new technologies created a renewed incentive a couple of years ago for companies to search out new oil fields and make old ones more profitable. This has left the world with an over whelming amount of oil. That won’t change over night but I believe future price increases were inevitable. It is possible this decision would hasten that inevitability but we don’t know that to be the case right now.
So at the end of the day, what does this mean for the average consumer? Right now, not much but it could hurt our pocket books in the future depending on how aggressive OPEC is with these cuts. Many believed when oil prices fell off a cliff two years ago that it would be a boom for the economy but that hope never came to fruition and this one might not either. It is my belief that most of the savings consumers have seen over the past two years at the pump were swallowed up by rising costs of health care, education, housing or whatever else the Fed is ignoring as inflation.
Despite all the hope and hype an economic boom on the backs of cheap oil never appeared and a lot of companies took a hit. When the fall in oil prices hurt the profitability of many companies, it also hurt their employees. I, as many others, love paying less at the pump but I think many over looked the consequences of what would eventually would ripple across the economy from a corporate standpoint. Never the less consumers have saved money in many places due to decreases in oil prices. So if prices were to go up it would put a squeeze on consumers.
Although, everyone knew that the days of cheap oil wouldn’t last forever but who knows when the end will finally get here. In the mean time, enjoy filling up your tank for less and don’t worry about what anybody is doing to hopefully raise prices. Like I said above, I think this is another example of markets being on edge. Before we even know the effects and full extent of this decisions, markets react with a huge swing. Similar to what happened after the Brexit vote. At the end of the day, life will resume as normal no matter what oil prices do but filling up your tank might get a little more painful.