Much
has been made about the recent drop in oil
prices. Many people in the United States thought that they
would never see gas below $2 a gallon again. However, gas prices are now well
below this benchmark, and they continue to decline.
The
national average price for a gallon of gas is $1.88, as of January 19,
according to AAA’s
Daily
Fuel Gauge Report. The figure is down sharply as compared with the last
12 months, although gas prices have been falling for longer than that time.
Effect on Businesses
While consumers may be happy paying less for gas, businesses are feeling the effects in a decidedly less positive manner. The New York Times reports that roughly 250,000 oil workers have been laid off. Two-thirds of oil rigs have been decommissioned, and sales of oil production machines are down sharply.
While
these numbers may seem shocking to many, a look at just how much oil prices
have fallen shows why businesses in the oil industry have taken a serious hit.
According to the New York Times, oil
prices have fallen by more than 60% since June 2014. Current prices are at
their lowest level in 12 years, in spite of the considerable inflation that has
occurred during this time period.
Only
a few short years ago, oil prices were $90 or even $100 a barrel. The price for
a barrel of crude oil is currently about $28. The precipitous decline was
unforeseen by the majority of analysts, as most expected OPEC (Organization of
the Petroleum Exporting Countries) and other similar organizations to continue
managing the supply of petroleum in such a way that prices remained high.
Too Much Supply
However,
these organizations have failed to manage the supply as well as they did in the
past. Over the last few years, oil production has risen sharply, particularly
in the United States, Canada, and Iraq. Part of this increase in supply can be
attributed to the advent of fracking in North America. The increased oil production
in Iraq is frequently cited as an effect of the somewhat more stable political
situation in that country.
The
rise in oil production has begun to tail off, but the available evidence
indicates that this will not immediately result in a large decline in oil
prices. Stockpiles of petroleum products have increased to such a degree that
there is more than enough oil for the long term, according to the New York Times.
Although
production has begun to level out, there is further evidence that it will pick
up again. New technologies are being developed across the industry, especially
with regards to the practice of fracking. Moreover, the Gulf of Mexico and the
oceans of Canada are expected to yield a great deal more oil in the future, as
many drilling projects progress and new projects begin.
Decreased Demand for Oil
Another
important factor in the drop of oil prices is the level of demand. With cars
becoming more fuel efficient and the global economy remaining weak, demand is
significantly less than had been projected in years past. To put it simply,
fewer people are buying cars, and those who are on the road use less gas. The
trend of fewer cars being sold is expected to end once the global economy
improves. However, the fuel efficiency trend is only expected to accelerate.
Is
the decrease in the price of oil good or bad? The answer is that it depends on
one’s point of view. As with all major market forces, the effects of the drop
in oil prices are widespread and complex.
Positive Aspects of Lower Prices
The positive aspects of the decline in petroleum prices are more visible than are the negative. The drop in gas prices is welcome by most adults in the United States who buy gas on a regular basis. The reduction in heating costs has also been quite noticeable, as many homes in the United States are still heated with oil.
The
decrease in gas prices is more helpful to those under the poverty line, as they
have roughly the same heating and gas bills as everyone else, but have less
income with which to pay these bills. The savings are especially important at a
time when food and housing costs have risen sharply.
However, the drop in gas prices has also had negative effects. Countries that depend on oil, such as Venezuela, have been hit very hard. These countries often struggle with issues of poverty and income equality, and they are more affected by a bad economy than rich people. The decline in oil prices may even threaten political stability, if a country that relies on petroleum is forced to make cuts to social programs.
No comments:
Post a Comment