By James Hartley
Starting in November 2014, the United States saw a drop in oil prices that translated into prices of gas at the pump for the common consumer.
“For the you and I, the consumer, (this) is a good thing; for the industry it’s not a good thing.” economics professor Bob Felder said. “But oil companies in the U.S. didn’t share our enthusiasm,”
Since the oil prices dropped, American oil companies have begun laying off employees. This spells out an economic future for America that is complex and constantly moving.
Gas prices at the pump dropped as low as $1.69, and students took advantage of the financial relief.
Psychology major Keaton Howell said that he previously spent about $45 a week on his “small, four cylinder car” before gas prices fell, but now spends $10 a week and is” free to travel more.”
“I’ll spend more if we’re out somewhere and I feel like getting us something to eat, me and my fiancé,” he said. “But not as much as, say, buying a new game that I want. I would save it.”
Felder said that as prices drop, it costs more to produce oil than it’s worth. The result is layoffs “across the board in the oil industry.”
According to the Associated Press, Houston-based oil company Baker Hughes is estimated to lay off 7,000 workers. Schlumberger Ltd., the largest oil producer in the world, has plans to lay off 9,000.
“It could have a drag for the economy,” Felder said.
Economics professor Gerald Shilling said it’s unlikely to hurt the United States, though oil-dependent Venezuela and Russia are likely to suffer.
“We’re much more diversified,” he said.
All of this is short-term, though. The long-term consequences of dropping oil prices are less certain. A lot of it depends on the actions of Saudi Arabia, Shilling said.
Right before oil prices fell, the Organization of Petroleum Exporting Countries, commonly referred to as OPEC, tried to convince Saudi Arabia to slow oil production in order to level out the price of oil, according to Shilling.
Part of this was an attempt to put American oil companies out of business, and Saudi Arabia is simply fed up with taking the financial fall when oil prices need to be balanced, he said.
Though they don’t have their traditional power to manipulate oil prices, Shilling said the American economy is going to take hits.
“Texas will take a hit, West Texas has already taken a hit,” he said, though he doesn’t foresee the hit Texas takes being as bad as that of the ‘80s.
Oil Prices Rise Again
In January 2015, gas prices began to rise as oil companies slowed production and laid off employees. The burden Saudi Arabia normally carries, reducing production at the cost of profit, has been taken up by the United States.
The United States is still a major OPEC consumer and the fact that the U.S. oil companies such as Baker Hughes and Schlumberger Ltd. have cut back production of crude oil has affected prices; consumers are feeling it. We saw prices on gas at the pump jump overnight by 10, 20, and 30 cents a gallon in January and continue to climb to just over $2 as February rolled around. On March 2, the average price in Texas was $2.23, according to AAA.
Protecting Yourself and Your Pocketbook
Shilling and Felder advise students not to get too carried away with the extra cash in their pockets. Be frugal, they say.
Shilling went further, advising students to plan for their economic futures now.
“A lot of college graduates wish they had taken more time selecting their major,” he said. “In other words, we have a lot of college students getting out of college and they don’t have a major that is in demand.
“No. 2, which they may not like to hear, is study harder. The third one … is most of them wish they had worked when going to college. Especially if they’d done an internship in the field in which they planned to major.”