re: Oil crash is kicking off one of the largest wealth transfers in human history

Gotcha. Totally agree the system needs to be completely restructured.

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Oilfield baws here claim that people won't spend it and that they'll just save it. I don't believe it.

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Neither would any respectable economist

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Unfortunately a poor state with a budget heavily dependent upon oil profits isn't going to see a huge benefit from this paradox.

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Leave Louisiana, problem solved.

How is wealth being transferred

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Oil crash is kicking off one of the largest wealth transfers in human history by Street Hawk

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Damn, I wish Chicken would get a money talk board, this would be a great subject there.

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temporary windfall due to high supply and lowered demand. If demand creeps back up then sooner or later will the price

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I do believe demand is down, but not substantially. Not near the 75%+ that the price of oil is down. It's a supply glut that's causing this. Oil is a weird commodity in that there is plenty of it. It's not like crops where there is only so much farm land and capacity to grow. There's ton's of oil, it's just how fast we let it flow. And right now the world is full of greedy people who don't want to stop the flow. People may have extra cash in their pockets, but it has nothing to do with the world having some major shift in demand. People haven't changed their lifestyles and beaten the "death grip" of oil prices. If and when the glut is wiped out and people need their fuel, prices will rise again and I don't see it lasting 4 years. Now the industry may be down and running lean for more than that, but prices will rise. Hopefully some lessons are learned and people will not try to gouge prices at $130 a bbl, but I seriously doubt that happens.

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How is wealth being transferred

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With the money I'm saving on gas, I can afford that down payment on my new Tesla.

I buy the same amount fuel whether it is high or low, I feel like most Americans are the same. I go to work, day to day errands, and the occasional vacation. With the price low, it simply doesn't sting as bad at the pump, that's it. It's not like now that gas is cheap I'm just going to drive around all day or make some extravagant purchase.

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Oilfield baws here claim that people won't spend it and that they'll just save it. I don't believe it.

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Unfortunately, they're mostly correct.

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"The economic benefit to the U.S. as a result of low oil prices has been called into question due to the amount of economic activity that was generated as a result of the shale boom, itself," Anthony Starkey, manager of energy analysis at Platts Bentek, an analytics and forecasting unit of Platts, an energy and commodities information provider. "The shale boom created high paying jobs and generated demand for investments in infrastructure to drill for, transport, and refine oil. All of this was funded with $100 oil and now that those prices have crashed, so too has the money it created in spurring that growth."

Kilduff cited reports from the JPMorgan Chase Institute and Visa on the consumer spending boost in making his case, but there's an interesting footnote — both reports were from the Spring 2015.

Diana Farrell, the CEO of the JPMorgan Chase Institute and lead author of the report, said the answer to the riddle is this: cheap gas did help the economy — past tense.

In the period that JPMorgan studied — April 2014 through January 2015 — there was a boost in consumer spending which the bank could track because it used debit and credit card transactions as the basis for its research. But in the update that JPMorgan plans to release this Spring using more current data, Farrell said the conclusion will be different: the boost from cheap gas already occurred and isn't still happening, and likely won't again.

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LINK

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My understanding is you're right, but for the sake of this article's point it's the same (if not worse). The author is trying to make a nice headline out of something that will likely bite consumers in the arse. Just like people say "well you should have prepared for this" to oilfield workers, the average consumer is going to forget what $4 gas felt like and in two years when demand has been growing and suddenly supply is throttled down, the market is gonna get its money back.

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Gotcha. The only way we all long-run benefit is if actual costs go down. Labor costs have come down some, but that's almost a tautology of the field being in distress to begin with. I believe virtually all of the companies that have taken on significant debt will go BK or some kind of re-org and convert that debt to equity. That will effectively lower the breakeven costs of the producers (in some cases, in a fairly material fashion). So that will help. I just have no idea when the actual physical costs are going to be materially lowered.