Crude oil prices plunged to a six-year low in a potentially painful threat to oil-exporting nations that rely on crude to power their economies.
Many analysts believe that oil prices between $30 and $40 per barrel are a real possibility. Oil traders are placing bets on oil sinking as low as $20 a barrel.
Oil prices are still looking for a floor, in part because the persistent mismatch between global supply and demand continues.
Prices in the $40-per-barrel are starting to seriously test the economics of many operations. That’s because unlike other new sources of oil production such as Canada’s tar sands U.S. tight-oil production relies on continuous drilling of wells.
Ultimately, the big risk to the U.S. economy lies in just how that yin and yang play out. Cheaper oil will hurt energy producers, the industry and some banks.
The drop would essentially extends the Federal Reserve’s policy of priming the economy with easy money and sets the stage for a harder landing sometime next year.
Just a thought.