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Farrell: Lower Oil Price Equals A Tax Cut

America uses about 20 million barrels of oil a day. We import about 60% of that. I have seen many observers opine that the fall from the $147 peak oil price earlier this year to the current level is a huge windfall for the American consumer. All true, but a little dissection of the info is needed.

Oil will average about $100 this year. It's tough to say exactly, but close enough for government work. If we have a continued economic slowdown, the current price of around $60 is a good guess for 2009 (more on that at the end of the note).

Sixty percent of the 20 million barrels we use are imported, or 12 million barrels a day. Multiply that by the $40 savings if $60 is the right price for 2009, times 365 days and you get $1.75 billion the American economy doesn't spend in 2009 compared to 2008, and, maybe as important, doesn't send to folks overseas who don't like us.

The other 8 million barrels would be priced $1.17 billion less than 2008. But since that is from domestic production, there are some offsets to the economic savings. That's $1.17 billion less those companies don't have for reinvestment or dividends or whatever. The costs benefit to the economy is different than the savings on the foreign oil, but you get the idea. However you add the two numbers, the benefits are enormous.

    • World Needs to Tap Oil Reserves More Quickly: IEA

Earlier this year, we wrote that the high price of oil would bring about demand destruction which would bring about lower oil prices. Now the low price of oil will spur investment and economic growth and a higher price. But maybe a higher price of oil could be the best indicator of renewed economic expansion!

To the stock market for a second: I saw a note from my pal, Jason Trennert of Strategas, that only 4% of companies listed on the NYSE are above their 200 day moving average. That's the smallest percentage since 1994. I view that as a contrary and bullish sign that stocks are sold out. I'm still hoping/praying/desperately wanting/fearful that it won't be that 840 on the S&P will be a low that holds up (close 898 on Tuesday).

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