5 Consequences of the Oil Drop

1. Russia is in trouble

Nevermind the fighting in Ukraine. The ruble is down 39% against the dollar since June and that's despite near-constant intervention from the central bank. Russia has been remarkably stable so far but if prices keep falling a genuine crisis is certain

2. Other emerging markets too

Colombia was begging for FX weakness for years but now the peso is down 16% in 5 months as its biggest export slides. In the Middle East, lower oil could bring instability and cause capital flight. Other emerging markets are winners but the speed of the oil move brings unwanted volatility.

3. Lower oil is good for the US…to a point

Lower gasoline prices are great news for consumers ahead of the holidays but there's a flipside. The shale boom has single-handedly revived US 'manufacturing' and has dramatically helped the trade balance but shale drilling has extremely high costs and wells deplete quickly. Below $75 the industry will begin to shut down.

4. If you think WTI is low…

Canadian oil may get some good news on the Keystone XL pipeline but it won't help right away. Canadian benchmark Western Canada Select is trading at just $58.70/barrel and the loonie is beginning to move tick-for-tick with crude.

5. Forget Inflation

Falling oil prices will cut the legs out of inflation. Even if wage growth begins to materialize, low oil will hurt inflation and lead to some second-round effects as it passes through the supply chain. On Thursday, even the ultra-dovish Plosser said inflation is not a concern in the near term. If the Fed hikes in Q2 2015, it will be purely to stem the risk of excess in the credit markets.