Don Roach: Why are Falling Oil Prices Killing my 401(k)?!
Wednesday, January 20, 2016
GoLocal reported yesterday that RI gas prices dropped another 5 cents from the previous week. As I pumped some gas earlier this week, I reveled in 1.84/gallon I was paying. I mean I can’t remember prices this low except when I was an SAT tutor in 2000 and trekked from Warwick, RI to Natick, MA (and back) on $5.00 in my – just let me have this one – plush 1989 Nissan Sentra.
Not only that, if you’re like me and thousands across Rhode Island, you have oil heat. A few years ago, I recall paying around $4.25/gallon of heating oil. Most winters are a little colder to start than this one has been, and for those of you with oil heat you probably remember spending upwards of 800-900 a month in the winter months just to keep warm. In speaking with my oil company – no free advertising here – they told me that to refill my tank would be a paltry $1.59/gallon. In relation to the high of $4.25, that’s a reduction of 267 percent. Talk about savings!
Well if you’ve read this far, you’re probably wondering why I began this article talking about wanting some company for my misery and yet, I’ve spent the better part of two hundred words talking about how low gas and heating oil prices are. Where’s the misery?
The misery comes by way of the stock market. Rhode Islanders, we’ve made some shady investments in the past (not going to say XX Studios) but the stock market has been and I’m sure will be one of those long term successful investment mechanisms. But right now it’s all over the place having lost 1,079 points last week. If you’re like me you’re looking away from your investments and probably most importantly your 401(k). To say that my ‘portfolio’ has taken a hit would be an understatement.
Investors are scared and folks like you and I are usually the most skittish having not been given small loans from our fathers to build a multi-billion dollar enterprise. So why all the talk about gas and heating oil prices?
Before we talk about that, I feel the need for a small diversion. Remember back when gas prices were really low (relative to today) say circa 2000 and 2003-ish. Back then, oil companies were still making money hand over fist. I did a quick Google search, and Exxon’s gross profit in 2003 was 45.6b if my source is accurate. Cheap gas and 45.6b in profits. So I’ve always thought that if gas goes up oil companies just make that much more but if gas is at current levels they still can make billions and billions and billions of dollars.
So why would low crude oil prices have a negative effect on the stock market? As a non-economist I’d think low oil would lead to a better economy because cost of shipping would be reduced. But apparently the opposite is true. It’s like low oil prices is an oxymoron like passive aggression, new classic, or one I heard recently thoughtlessly hurtful.
Still, I did more digging to try to find the link and alas I couldn’t parse through the economic jargon to get to the cause. Perhaps in the comment section if you know the link between oil and stock markets you could enlighten the rest of us. All I do know is that as the price of oil drops so too does the Dow. The Dow dropping affects many of our retirement savings accounts and recovery from the most recent drops may take a while.
And thus, I’m in misery. On the one hand gas prices in Rhode Island and across the nation are the lowest they’ve been in years. But on the other hand, the stock market has not been able to stabilize its decline that began in 2014.
What an awesome way to begin the new year!
Don Roach is a Young Republican. Please like Don’s Facebook page!
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