Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Consumers Winning With Low Oil Prices, For Now
By Thomas Miller
Oil Price, Al-Jazeerah, CCUN, March 2015
Lest we be too quick to forget whence we came, America is now
9-months into lower gasoline prices, which started their swoon the week of
June 30, 2015 from a lofty national average just under $3.70, tumbling
almost every subsequent week before bottoming and bouncing from $2.02 the
end of January, according to gasbuddy.com.
It is estimated that
for every penny gas goes down, consumers collectively save $1 billion.
Therefore, the 2014/2015 drop has accounted for at least $50 billion in
your pocket and mine. Well, maybe a little less than that in each of our
pockets, but the national average is about $500 bucks per family. The
question begs then, has that money shown up in other parts of the economy?
Dr. Bernard Weinstein, Ph.D., Columbia and Associate Director of
the Maguire Energy Institute at the Cox School of Business at Southern
Methodist University in Dallas says it has: "No question we're seeing the
effects of lower oil prices throughout the economy."
economic front, although retail sales were not as strong in December and
January, most analysts are shrugging it off as a temporary blip. The
manufactured durable goods number in January did tick up slightly more
than expected, with nearly a 3-percent increase. Interestingly, with fuel
prices lower, the Ford F-Series, Chevy Silverado and Dodge Ram trucks have
been the top three selling vehicles (in that order) since September, 2014.
The usual beneficiaries of lower oil prices are still benefitting:
Transportation, airlines, power generators, refiners and any business
directly using oil or natural gas for fuel or feedstock.
the decline continues to hammer drillers and producers hardest. As of last
week, according to Baker Hughes, there are 687 fewer rigs drilling for oil
than the peak of last October, now up to a 43% decline. Drillers, and
those who found in-demand and high-paying jobs over the last five years
exploring for oil and gas, are impacted the most. It is now speculated
that up to 250,000 top-wage domestic oilfield jobs could be lost before
this is over.
Dr. Weinstein attends and speaks frequently at
conferences and is often quoted in the media. He said he gets this one all
the time – is there an equilibrium price of oil where consumers still
aren't afraid to buy and drive their F-150s, while oil and gas companies
aren't having to lay down rigs and lay off good employees?
answer: $70-$80 is the happy medium. "At that range, the shale plays in
North America make sense and consumers would still be looking at lower
We've never been here before in American history. We've
never seen a crude revival so prolific that it re-positioned America as a
dominant force on the world's oil stage, threatening a 40-year old dynasty
of virtual monopolistic commodity price control. These are uncharted
waters, and present a new and delicate balance between unregulated global
supply versus fluctuating demand.
As observed by such industry
experts as OPEC's Secretary General, Abdulla Al-Badri and Continental
Resources CEO Harold Hamm, if too much production comes offline, this
could be setting the stage for a sharp price boomerang. When U.S. decline
curves eventually catch up with fewer rigs, oil supplies should start to
fall. If OPEC holds at its 2011 agreed 30.37 quota, with oil already
allocated away from the U.S., could that set up an American supply
shortage down the road?
As Al-Badri said in January, "if you don't
invest in oil and gas, you will see more than $200 oil," referring to the
greater than expected drop in new projects from offshore to shale.
That theory could be off-set somewhat by the recent news from Wood
Mackenzie that there are approximately 3,000 wells that have been drilled
but not fracked. This "fracklog" is, in essence, in-ground storage,
waiting for better prices. That is production that could be activated
faster than starting a new prospect from the ground up.
isn't like the 1980's – it's not a full scale debacle," Weinstein says.
"What is a reasonable price for oil? There's no such thing as a reasonable
price for oil. To me, as an economist, the price of oil is going to be
determined by supply and demand. If you're a consumer, you want the lowest
price possible. If you're a producer, you want the highest price that
supply and demand will generate."
Clearly, at least for now,
consumers are winning.
By Thomas Miller for
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