$70 Oil, The End of The World, and Chinese Butterfiles

Wasn’t that the Carpenters that used to sing that song “Don’t they know it’s the end of the world…”? Now admittedly that song wasn’t about the price of oil and the resulting imminent end of the economic world as we know it, it was a love song. But whether its love or oil prices, when things go bad, it isn’t (so far) the end of the world.

I remember as a young salesman in the industrial chemical industry when the price of oil went down to $6 or $8 per barrel, I too thought it was the end of the world. But it wasn’t, and I don’t think it will be (or anything anywhere near it) this time either at $70 or $80. Why not? Well this is going to be more of an opinion piece today than a fact based analysis so allow me a little leeway here, but here I go. Let me start with the big picture.

Butterflies in China

With technology, the world is rapidly becoming smaller and indeed, when a butterfly flaps its wings in China, we feel it over here. The economies of the world’s countries are becoming ever more intertwined. I just finished a good book Plutocrats about just that. It documented the rise of the richest 1% of people in the world over the last 50 years and some of the probable reasons behind their ability to grow their incomes exponentially while the rest of ours (well mine anyways) have languished. The reasons are many (and some not so nice), and I don’t want to spoil the book for you but one of the big reasons is technology and the internet. We see this every day when we talk to a tech support person half way around the globe or buy goods made in China.

Okay so my point…finally. The countries of the world have been through a pretty big economic downturn since the financial meltdown of 2007-2009 (the book talks about that too) and economic indicators seem to suggest that the worst is behind us. Now I will be the first to admit the mess we got ourselves into this time is a big one and the climb will take many years, but I just don’t believe the downward risk is that great at the moment. The world is on a slow but positive economic mend and that is a good thing.

US Economic Factors

It is my opinion that the US is still in a big economic quagmire but everyone there knows they can’t just keep printing the greenbacks at will anymore and so they are ever so slowly fixing the mess their plutocrats (gotta read the book) have created. Their economic indicators are certainly not incredible but things are heading in the right direction and GDP is improving.

Local Economic Factors

Locally, the news is even better. With the one wild card of Canadian personal debt (still not under control) the country is in reasonably strong financial shape and the rest of Canada is improving economically. The CDN Dollar continues to be low which is good for exports and oil is an export business.

So all around us, the indicators are continuing to slowly chug along in the right direction. Even at the current $75 per barrel price range, it is still worth pumping the stuff. Our provincial government’s budget is going to take a hit for sure and that is a concern, so let’s hope the price crawls back up some soon.

I think perhaps a $70 or $80 barrel of oil for a while may be a good thing. Things have been pretty active in Alberta lately and when our economy gets overheated it often ends badly. A little cooling off will bring everyone’s expectations back down to normal and, in my humble opinion, extend the good times. One of the reasons governments became more active in controlling economies after the depression of the 30s was to smooth out the bumps, creating more good times for all.

The end of the world? No I don’t think so. In fact in a couple years we may be glad things cooled down a bit.

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