Everyone is aware of the recent drop in oil prices. Poor and middle class Americans, who have spent the better part of a decade dealing with increasing prices, have breathed a collective sigh of relief as the struggle to afford just normal everyday travel has become less burdensome. Democrats everywhere sarcastically rejoice , while conservatives secretly rejoice in the lower prices. I think it’s important to ask a few questions though. Why the sharp drop in prices? Are there any negative impacts to the price drop? What does cheaper gas mean for our immediate and far off futures?
So why the sharp drop in prices? Three words: supply and demand. Not too long ago we were dragged through a peak oil hysteria. We thought the demand for oil would continue to rise as growing economy’s demands for oil grew. There was talk of shortages, potential world wide wars over oil, and overall panic set in as forecasts about oil demand got bleak. Then two major things happened. The global economy has been tanking behind the continuing collapse in China and increased supply due to US production. The world’s oil supply is overflowing right now, particularly due to America’s fracking boom. Fracking – a method of extracting natural gas from shale rock deep below the earth’s surface – has pushed US oil production to its highest level in 30 years. With such an abundant supply of oil on the market the price has sunk drastically. According to officials in Venezuela, the world has an oil surplus of 2 million barrels daily. The result is that current projections say the drop in oil prices will continue through at least 2017. It seems OPEC’s strategy is to push US oil fracking companies out of the market. Its cheaper to drill in Kuwait than it is to frack in middle America. Even still American fracking seems committed to continued production. They are aided by the fact that extraction costs have dropped almost 50% over the last year due to new technologies, and extraction costs continue to drop.
One of the immediate impacts of the drop in oil prices is the tumultuous impact the fracking bust is having on the American mid west. As recently as September 2014, we were still hearing about how fracking was revitalizing the rust belt, but by March of 2015 the bottom was already clearly falling out. This boom began right as the crash of 2008 was hitting us the hardest. Now regions that were managing to do ok since the 08 collapse, buoyed by the oil industry, are now joining the rest of America in our “recovery” we keep hearing about.
Beyond the economic impacts on oil industry dependent regions there are the obvious negative impacts of low oil prices on the environment. We’ve already seen proof of people’s short memories. Nicole Friedman commenting for Barrons.com writes
Bullish investors point to robust demand as a key reason that they expect oil prices to start recovering in the second half of 2016. It’s not just that drivers are hitting the road more, they say. They’re also buying less fuel-efficient vehicles, such as big SUVs, which suggests that demand could stay high for years. In addition, U.S. drivers traveled 2.6 billion miles in the first 10 months of 2015, the highest number for that period on record. And U.S. car sales also hit a record high in 2015, with many consumers opting to buy larger vehicles.
Those of us on left understood that gas prices were too low even before the drop in prices, and have an even harder road ahead if gas prices remain low. I know what those who support lower gas prices say, “Isn’t this good for struggling Americans?” As a working class person I understand the strain higher gas prices place on the budgets of working class people, but I also understand that our continued oil dependency is bad for our foreign policy and bad for our environmental policy too. Automakers want to continue to sell gas guzzling vehicles. The auto industry does not want Americans (or the rest of the world for that matter) to transition to different eco-friendly technologies, and they do not want Americans to consider the benefits of mass transit on road congestion, pollution, and auto accident related deaths. Only gun related deaths are trending to surpass auto related deaths as the number one cause of death in the US. Cheaper gas prices can only hurt the efforts to move past the multiple issues we face with continued reliance on personal vehicles, and gas, for our everyday travel. With climate change already impacting our lives in real ways will we sit and wait to act until it is too late to reverse the effects of our negligence?
We don’t quite know what this drop in oil prices really says about our global economy. Some economists present a mixed picture. They are unsure how strong the global economy will be with so many world conflicts ongoing, the slow down in the Chinese economy, and with comparatively high and rising debt burdens across a number of advanced and growing market economies matched with incomes constrained by sluggish growth… Let’s just say it may be a bumpy ride for the global economy in coming years. We know that gas prices are expected to rebound some with increased demand over the next year or two. We know that fracking is not likely to go anywhere, and it’s impact on earthquakes and local water supplies will still be a huge concern.
With all these things I’ve just discussed the reality of low gas prices is clearly a complex one. What’s good for our pockets may not always translate to what is good for us overall.