Oil prices plunged below $56 a barrel Wednesday as awful numbers from retailers and a dismal outlook from automakers lent yet more evidence that the U.S. and the rest of the globe will slash its energy use.
This will help a lot of hurting people around the world. You may have to look for a job, but at least you will not pay $3 gallon to get around.
But lest you get too excited by this news, one should keep in mind the following facts:
1: The longer the price stays at this level, the more dependent the world is going to get on Middle Eastern oil. At $56 a barrel, many sources of oil outside the Middle East are no longer profitable.
2: The longer oil stays at this price, the more likely Russia will suffer a catastrophic collapse in the next couple of years. Granted, Russia is going to suffer a catastrophic collapse no matter what. But I was hoping that it would take at least 10 years for Russia to fall apart.
3: The longer oil stays at this price, the more unstable the Middle East is going to be. For example, Iraq is going to have a lot harder time rebuilding itself.
4: Unless there is big break through in the search for alternative energy sources, it is unlikely that oil prices will stay this low unless the world continues to suffer an economic catastrophe. Indeed, by undercutting alternatives, the current low price of oil sets the stage for a huge price increase in the future.