“A person often reads that low oil prices–for example, $30 per barrel oil prices–will stimulate the economy, and the economy will soon bounce back,” writes commentator Gail Tverberg in “Our Finite World.” “What is wrong with this story? A lot of things, as I see it:
1. Oil producers can’t really produce oil for $30 per barrel.
2. Oil producers really need prices that are higher than the technical extraction costs shown in Figure 1, making the situation even worse.
3. When oil prices drop very low, producers generally don’t stop producing.
4. Oil demand doesn’t increase very rapidly after prices drop from a high level.
5. The sharp drop in oil prices in the last 18 months has little to do with the cost of production.
The full explanation is here.