DROWSY DRIVING:

Rapid Plunge In Price of Oil May Fuel Growth (MARK WHITEHOUSE, ANN DAVIS and BHUSHAN BAHREE, January 11, 2007, Wall Street Journal)

The slide, which market participants said was fueled in part by speculative hedge-fund trading and a retreat by other investors, helped send stocks higher as investors bet lower energy prices would fatten corporate profits and strengthen economic growth, particularly in the U.S., the world's leading oil consumer. The Dow Jones Industrial Average jumped 72.82 points, or 0.59%, to a record close of 12514.98. (See related article1).

The price of oil tends to be volatile, and it could bounce back quickly. But if sustained, the decline in prices would have a big impact on everything from the American consumer to the profits of giant energy companies. It also could dent the revenues -- and the political clout -- of major oil-producing nations like Russia, Iran and Venezuela.

A senior official of the Organization of Petroleum Exporting Countries said yesterday that OPEC will consider the need for an emergency meeting to weigh what it should do to halt the price slide. OPEC already was cutting back its production sharply, the official said. He didn't specify whether the cartel would consider cuts beyond the 1.7 million barrels a day it has already pledged to remove from the market.

If lower oil prices lead to a reduction in what American consumers spend on gasoline, it would leave them with more money for all kinds of discretionary purchases, such as restaurant meals, movies and vacations. That spending could provide a welcome cushion for the U.S. economy, which is grappling with a sharp downturn in the housing sector. It could also give a boost to airlines and auto makers, which have been hurt by high fuel prices. [...]

[O]il's pullback "is coming at a great moment for the U.S. economy," says Ethan Harris, chief U.S. economist at Lehman Brothers in New York, who estimates that each $10 reduction in oil prices adds about a half percentage point to annualized growth in inflation-adjusted gross domestic product -- a broad measure of economic activity.

Someone want to wake Ben Bernanke, he's asleep at the wheel...

Posted by Orrin Judd at January 12, 2007 1:13 PM