One thing I haven’t seen a lot of talk about is the relationship between the price of oil and its impact on the stock market.
I just got done looking over the numbers and it’s pretty compelling information. The reason I looked at this is that my recollection is still pretty fresh regarding the impact of $4 a gallon gas and how it impacted our spending habits.
When gas was $2 a gallon we were planning trips, considering a new vehicle, eating out, buying gadgets. In short we were consuming the way any good consumer does. Then the price started to climb dramatically and when it hit $4 a gallon we, along with nearly everyone we interacted with, reacted just as dramatically. We canceled plans for trips, stopped eating out, looked for bargains anywhere we could find them, lowered the thermostat.
When you look at the data you see that the price of a gallon of gas was bouncing up and down from 2004 through 2007. Then at the end of 2007 it started to climb and showed no signs of retreating. It climbed over $3 a gallon, stayed above it and continued an upward path to $4 gallon in late July 2008. That’s eight months of solid increases that everyone saw and felt.
Meanwhile the stock market is behaving similarly. As the price of gas fluctuated the stock market continued a slow rise. It then began to falter at the end of 2007 and started its one-way downward spiral soon after.
Is this all just coincidental? To me it looks very clear that consumers woke up as a result of this direct attack on their bottom line and reacted by taking immediate actions to curtail their spending and to focus on reducing their discretionary spending. They’d need that money, presumably, just to pay for gas to get to work or to heat their homes.
Yes, the housing collapse is huge but much of this is all due to consumer confidence and spending. If consumers stop consuming nothing works.
It’s now my contention that big oil is very much to blame for what’s going on with the world economy today. They gave us all sorts of rhetoric regarding why the price of oil should be $150 a barrel. We were told there just wasn’t enough oil to go around. Meanwhile OPEC was telling everyone that this was totally bogus. They were saying that inventory was perfectly fine and that speculators and the oil companies were artificially driving up the price for the sake of collecting record profits.
The reason this is important is that now, with the price of oil down to $40 a barrel prices at the pump are still being held artificially higher than they should be. Refineries are making excuses for cutting back. Stories abound that even though demand is down the prices will continue to go up as prices for everything else in the world decline.
The one thing the world needs right now is cheap gas. If the economy is in the toilet and you can’t heat your home or get to work we’re all in much worse trouble than we should otherwise be.
The bottom line is that the oil companies thought they could pull this one over on us. They thought people would just suck it up and continue to pay whatever the oil companies demanded. It was their greed that drove consumers to stop the very engine that makes the world economy turn. We saw the problem and reacted. Now oil companies want to continue the party while the rest of us worry about being able to feed our children and keep a roof over our heads.
Enough is enough.