The big perk of oil's wild slide

Go figure! The world is about to come to an end as Ebola spreads, ISIS attacks, and the stock market collapses; yet, we are given the one thing American's have been screaming about for years: Lower prices at the pump.

Shoppers at a Toys R Us store in Arapahoe County, Colorado.
Karl Gehring | The Denver Post | Getty Images
Shoppers at a Toys R Us store in Arapahoe County, Colorado.

Crude oil is plummeting – down some $25 bucks a barrel from the yearly high set just a few months ago. And those lower prices mean lower gasoline prices for people like you and me, which should result in a few extra dollars in your pocket.

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This is big news, guys, because the biggest and most celebrated holiday of the year is coming up for many of you — Black Friday! (Oh, you thought I was going to say something like Thanksgiving or Christmas. Please! Those holidays are just a goofy excuse to miss work.)

I digress.

But if the current trend remains intact, we're going to hear about record breaking sales on Black Friday, which is awesome for retailers and the economy. I say spend, spend, spend those pennies you're saving while gassing up the F-150. And, according to Moody's, you should have a lot of dough to play with.

A 10-cent decrease in gas prices translates to an extra $93.25 in gasoline and diesel expenditures per year for the average American household, which equates to $11 billion in consumer spending. Over the past month, gasoline prices have declined 6 percent, or 20 cents per gallon. That, Mr. math wizard, is $22 billion in available cash. And, knowing many Americans prefer to spend than save, I would be thinking about opening a big-screen TV store if I were you.

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If you prefer happy endings and would rather stay away from reality, I would suggest stop reading; because this is where I tell you lower gas prices will likely have a dramatic and terrifying impact on violence around the globe.

First, let's get the obvious out of the way: Oil prices are dropping because of greater supply and lower demand. The flattening to negative economic predictions for the EU and Asia are clearly taking a toll on crude prices, which means less demand for petroleum. There's nothing new with this statement.

And oil analysts are quick to point out shale oil and shale gas as a primary reason for the oversupply, which is a valid point. However, even in the Middle East, we see Libya returning (quickly) as a respectable oil producer. The country is likely to hit the 1 million barrel per day threshold by early 2015, which is remarkable considering where they were just a year ago.

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Secondly, though, is the much more troubling issue. My friends in defense are telling me the rumors of a Kuwait/Saudi price war in the Asian market is real, and will likely further push crude prices lower as the Saudi's play catch-up, so as not to lose additional market share. But this is where the trouble begins.

The majority of oil-producing Middle East countries is losing money because of the cost to produce it. Currently, we're already below the break-even for Iran, Venezuela, Nigeria, Libya, Russia, Iraq and the good folks in Saudi Arabia. And, a side note regarding Nigeria: The United States no longer imports oil from there. In other words, Nigeria lost its largest client.

The Kuwait/Saudi price war isn't just about two countries and one customer. If the Saudis force the price of crude lower to compete with Kuwait, then it will likely pull the other OPEC members with it. And a lot of those other OPEC countries aren't exactly friendly territories.

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These countries have a very enviable business model. As prices rise, these countries make money — lots of money via oil royalties. So don't be surprised about what they might do to get prices back up.

Americans aren't likely to have sympathy for any of these countries' economic conditions. We lost jobs/homes/cars due to the cash outlays many had to shell out with higher pump prices back in 2008. If the Middle East has economic problems, then so be it. The result, though, is likely to mean even greater violence as desperation kicks in and struggling countries (i.e., members of the cartel) realize oil and gas are their only viable business models.

As crazy as it sounds, lower prices are perfect for the household balance sheet and saving money, but the overall price we pay for security may be even greater. The United States has always led the world in consumption; this is still true today. The only key difference is we're now the world's largest producer of oil and gas. And that, ladies and gentlemen, is a game-changer.

Turning the table on oil producers is great, but comes with additional risk. Hopefully, our country is prepared for the repercussions.

Commentary by Todd M. Schoenberger, president of J. Streicher Asset Management LLC. He also serves as portfolio manager of the LandColt Onshore and Offshore Funds. Follow him on Twitter @TMSchoenberger.

Disclosure: The LandColt Funds, which utilize quantitative and qualitative analysis, takes long and short positions in Oil & Gas equities.