Decreasing Oil Prices: Concern or Opportunity?
Now, you don’t have to go out west to find cheap gas prices. In the past year, gas prices have dropped exponentially nationwide as the balance of supply and demand shifted. The world is inventing new ways to harvest oil and access new reserves through more efficient technologies. Also, for the first time ever, new energy sources such as nuclear power and natural gas are becoming efficient enough to rely on for fuel. Our civilization has entered a turning point in terms of energy, and, as gas becomes cheaper due to its dropping demand, we may start to look toward more sustainable, renewable sources to pave the way in the energy industry for the future. The key concept we must acknowledge to fully understand why these prices have dropped, however, is supply and demand.
There are several reasons for a drop in demand for gas, one of which includes the idea that the economies of many countries are becoming less “busy.” The United States, China and many European countries are at a standstill for war, and they have brought their focus to reconstructing their infrastructure. Consequently, there is less need for oil. Also, as mentioned earlier, new ways of harvesting energy for use are being created, which widens the energy industry tremendously. Although oil harvesting may be cheaper and easier now, in the future, as technologies become more advanced, we will be able to perfect sustainable methods of producing energy. Finally, competition between countries and businesses is forcing the entire energy industry to lower its prices. For example, it costs much less for the companies and governments in the Middle East to harvest oil in their lands than it is elsewhere; therefore, the region can lower their prices while still reaping profits, causing all other organizations to lower their prices as well.
The supply for oil, on the other hand, has been continuously increasing. Governments and corporations have been developing new technologies in order to access untouched oil reserves in the most cost-effective way. Another interesting idea of why the gas prices have decreased is the fact that there have been less hurricanes in the Gulf of Mexico. Of course it is unfamiliar to New England students, but a hurricane can inhibit the use of thousands of oil rigs in one of the most oil-rich areas in the world. Because we have not seen any hurricanes in that area for a while, oil rigs have been able to harvest more fuel than ever before.
The supply and demand of the gas and oil also depends entirely on the global market, which is constantly fluctuating. We now hope to see the price of oil start leveling out at around $80 per barrel as the energy industry begins to stabilize. However, this fluctuation has greatly impacted the local and global community.
What we see from this drastic drop in gas prices are not only prices of $2.55 per gallon—lower than they’ve ever been since 2009—but also a few extra dollars in the pockets of everyday consumers and commuters. With this drop in gas prices, the average family can invest that money back into the economy by buying goods and services at rates like never before. The economy is clearly on the rise, but there are those who are skeptical about such a great outcome.
The perception of this drop depends on what side of the industry you are on. Over the past six months, oil prices have been cut in half, which means that oil stocks are taking a big plummet as well. Although it seems like a short-term gain currently, these drastically dropping oil prices may cause some serious repercussions. According to Mike McDonald, co-owner of Triad energy, some states could lose as much as $500 million. With not as big of a demand for oil, companies will have to start laying off their oil workers.
With the advent of fracking, the United States has been able to reduce oil imports by 30 percent, less than half the amount imported previously in 2005. At such a time, an oil drop like this would have been absorbed by exporting countries in the Middle East, but since imports are so low, those industries are taking a hard hit. Although this may seem gloomy, there is a silver lining after all. Some experts believe that the dropping prices may be largely impacted by better and faster fracking techniques now being improved upon by the oil companies, but the public should not ignore that. If oil prices continue to drop to where wholesale value is threatened, the entire oil industry might be in jeopardy. At the current state, however, even with prices dropping, production will continue. ♥
In fact, this may not even be the end. Some economists predict that it will be only this low for a short spell and eventually rebound, but others say that the price will only continue dropping. Whatever the case, oil companies are advertising the mantra “buy low, sell high” that every investor looks for, and for many, this could be their next big break. With regards to the average American consumer, however, economists speculate that the drop in oil prices will give US households over $1 billion to spend on a broader economy. Whatever the case may be, we will see more smiling faces and ample wallets heading into the new year.