Lower Gas Prices Around the United States

Photo Credit: Rod St. Aubyn
Photo Credit: Rod St. Aubyn

By: Chelsea Seifert
KTSW News

As oil prices have been plummeting, cheaper gas has made its way back into the U.S. making gas the cheapest it’s been since 2009.

Prices at the pump are far from a bad thing for the average consumer. According to information provided by the Daily Fuel Gauge Report by AAA, the national price average on Tuesday for one gallon of regular unleaded was slightly over two dollars, with the Austin-San Marcos area approximately the same. That’s roughly a 48 percent decrease compared to the average price one year ago.

While this dramatic decrease can greatly benefit consumers’ bank accounts, inexpensive oil can positively affect the U.S. economy but also hinder some industries.

The reason for cheap gas is correlated to the fall in Brent crude oil prices and is part of a much longer story.

In a recent article by U.S. News, crude oil prices have slid more than 60 percent after reaching $115 per barrel last June. Currently, crude oil has increased slightly to $58 per barrel after dipping below $50 in January.

Liquid Fuel Markets Team for the U.S. Energy Information Administration Sean Hill said ultimately the biggest reason for the decrease in prices is due to the supply and demand relationship.

“The global demand in the past six months or so has been weaker than what was expected but for the most part what has driven the oil prices over the last six seven months has been this growing supply of crude oil out of the United States,” Hill said.

Crude oil prices were high for much of the past decade, up until mid-2014, as oil consumption soared for countries like China and India. Additionally, conflicts in oil producing countries like Iraq spurred the increase, but ultimately, oil prices spiked because production couldn’t keep up with demand.

This caused U.S. companies to find alternative methods for oil production.

Horizontal drilling such as fracking began to pop up more in states like Texas and North Dakota producing large amounts of oil for the U.S.. However, according to the EIA, crude oil prices began to fall sharply as the world oil supply was on track to rise much higher than the demand.

Texas State University Geography Professor Dr. Richard Boehm said the oil supply is so abundant right now that the U.S. could support itself regarding oil needs.

“We use to be a 60 percent importer of oil and we’re now practically self-sufficient in oil. We’re practically producing all the oil that we need and even getting very close to the point where we could actually be exporting oil to other countries,” Boehm said.

But independent drilling in the United States isn’t the only reason why prices have dropped.

Last November OPEC, the Organization of the Petroleum Exporting Countries, decided to not reduce oil production despite there currently being a surplus in the world market. OPEC is made up of 12 member countries that produce most of the oil for the world. This includes Saudi Arabia, which contributes about 70 percent of that output and has very low production costs.

Hill said there are different theories as to why OPEC decided to continue production, the most prominent being to maintain market shares.

“By allowing prices to fall further they can essentially allow some of these newer production sites in North Dakota and Texas to have to stop drilling because of the sites have much higher costs to produce oil than Saudi Arabia,” Hill said.

Some U.S. production companies have already experienced job loss, causing concern for those in the oil and gas industry. A CNN article states that Schlumberger laid-off 9,000 employees in just one week because of the low oil prices.

Though some jobs are at stake the reduced prices could actually be more beneficial in the long run.

The EIA released statistics in January stating that the average household in the U.S. will spend about $750 less in gasoline in 2015 compared to last year.

Advancements in technology has put U.S. citizens in the position where reliance on oil and gas has reduced and Boehm said this isn’t a bad thing for our country.

“We have cars that now get 40-45 miles to the gallon, we have all kinds of new efficiencies and the use of energy so we don’t need as much oil as we use to,” Boehm said.

The EIA projects that oil prices will continue to drop until December. Hill and Boehm both agree that consumers will now be able to put this extra money into the economy by spending elsewhere.

However, experts will not be able to tell until later in the year whether increased spending will outweigh the negative effects such as job loss.

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