Gail the Actuary at ourfiniteworld.com and theoildrum.com writes outstanding columns on peak oil and finance.
There are so many graphs that I’m not going to summarize all of this article, you need to read it! Most people assume that lower oil prices are good, and even a sign not to worry about Peak Oil. Gail explains how this can be.
July 6, 2012. Lower Oil Prices – Not a Good Sign! theoildrum.com
A few reasons why lower oil prices aren’t good:
- Governments have run up huge deficits to pay for oil and kept interest rates very low to cover up this damage, but in the long run this doesn’t work, as we’re seeing now with the PIIGS (Portugal, Italy, Ireland, Greece, and Spain)
- Low interest rates aren’t entirely beneficial because pension funds need much larger employer contributions to make good on their promises.
- Retirees who depend on interest to live off of have less income.
- Energy companies don’t drill for more oil because they aren’t getting enough money to justify the expense
Oil supply hasn’t risen as much as you’d expect for quite a long time, and although that usually leads to price increases, like it did until 2008, the opposite can happen if recession occurs and decreases demand. That seems to be what’s happening now, and prices are likely to drop even further as the recession gets worse.
In this March 28, 2011 article, Gail shows why 11 of the past 12 recessions were caused by rising oil prices