Falling Oil Prices: The Bright Side of the Meltdown

One of the few bright spots in the current economic maelstrom - a storm that seems to be dragging everything down with it into some very dark place from whence there may be no return - is that energy prices have come down to reasonable levels again.

Gasoline prices today are at levels last seen when the housing boom was just kicking into high gear - about the time that thousands and thousands of American homeowners figured it might be a good idea to take Citibank (C) up on their generous offer and borrow against the equity in the house to go out and buy that Escalade or Hummer they so desired.

The 2004 model UAVs (that is, Urban Assault Vehicles - haven't hear that one in a while) are beginning to show their age, but the fact that they're showing anything at all right now is one of the most surprising developments in 2008, a year that is mercifully set to conclude in less than ten days.

We were out and about for most of the day yesterday and it was clear that the trend that began about four months ago has intensified to such extremes that one might think a time machine had been activated, transporting us all back about three or four years.

Real estate prices are certainly much closer to their 2003 levels than those of 2006 and stock prices are not all that different from four years ago either, the moves of these two asset classes having a distinctly different feeling on the way down than on the way up.

But, interestingly, driving ridiculously large trucks and automobiles makes sense again and their owners are happy to show it.

More importantly, buying ridiculously large trucks and automobiles when gas doesn't cost much more than $1.50 a gallon seems to make sense too! You almost expect someone from the government to say, "Go out and buy an SUV to support the economy", as was done during the last economic downturn (a reference escapes me here - someone at the Federal Reserve?).

A report at CNN/Money notes the sharp increase in sales of trucks and SUVs in recent months, the combination of cheap energy and huge dealer incentives apparently pushing hesitant buyers over the edge - at least those who managed to survive the last year with their job and credit intact.

Trucks and SUVs are now outselling those gas-sipping hybrids that dealers couldn't keep in stock just a few months ago. Prius owners don't look nearly as smart as they did over the summer when Hummers would sit and sit in their owners' driveways, the once-proud driver of the monstrosity not able to summon the courage to watch those numbers spin round and round at the filling station as others looked on.

At the peak, it cost between $150 and $200 to fill up one of those big Suburbans or Lincoln Navigators (see the SUV Fill Up Index from July 16th), but now you can fill up a bone-dry tank for $50 or less.

For those who aspired to be less ostentatious, opting instead for something like a Chevy Tahoe or a Nissan Armada, they can usually get away for less than $40.

For the rest of us, it's amazing how much gasoline a $20 bill buys today.

This is the bright side of the meltdown.

Comments

[xmplary:]

Unfortunately it is these same bad decision that led the oil companies to gauge us, and it will happen again and again, till we learn to cut down on our oil consumption which enslaves us. We have to create mass transportation systems that helps reduce dependence on oil and research on new alternative sources of energy, least we enslave not only us, but our children as well.

2008 Dec 23 09:33 AM

[Stock Trade...:]

Add to that the current lower gasoline prices are a much needed end of year/Christmas gift. I heard Dennis Gartman mention this morning that even though gas and oil prices are down, consumers are still cutting back on driving. With unemployment rising and layoffs continuing, demand may still have further to decline. I was one of the bright ones who purchased a superduty pickup in 2003, with a diesel engine no less. At the time diesel fuel was cheaper than regular gas, and always had been. As soon as I purchased the truck, that all changed and diesel fuel has been higher ever since. I guess we'll have to see what happens in the coming months before we have reason to celebrate.

2008 Dec 23 11:28 AM

[SteveB/Colo...:]

Buying gas guzzlers makes no real sense in these times. The current low prices are not a reason to celebrate.The long term trend in oil prices is up as there is a finite supply to go around. So called "supplies" like oil shale are at best a pipe dream as there is no economically feasible method to develop that resource.

I have driven small SUVs for years, as that type of vehicle makes sense in the mountain environment where I live. But from 2006 to 2008, I decreased my miles driven by over 20%. Amazing how much money can be expended on unnecessary driving.

2008 Dec 23 12:37 PM

[bowman711:]

Enjoy the low oil/gasoline prices while you can. The longer the prices are surpressed the more exploration and development of new souces becomes reduced or even curtailed. Then, when the economies of the world start to recover, there will be even greater shortages than there othewise would be. The shorter the supply, the higher the price will go. At some point in the next few years, you will be happy if oil goes back DOWN to $147/barrel.

2008 Dec 23 12:45 PM