Low gas prices hurt economy
While we have no doubt enjoyed low gas prices — a gallon of gas was as cheap as $1.61 in Brookhaven Wednesday — there will be consequences for cheap oil.
The most obvious will be in the oil production business. Thousands of good-paying jobs will disappear as oil rig counts drop. Already, some local oil field jobs have dried up. Though Lincoln County’s unemployment rate has yet to be impacted, it may be in the future.
Ben Thompson, the Mississippi and Alabama Division president of the U.S. Oil and Gas Association, told the Clarion-Ledger the low prices have been “devastating” for the state.
Thompson said independent oil producers in Mississippi, those that employ anywhere from 50 to more than 500 employees, have had to drastically cut back on operations, the newspaper reported. He said there have been significant layoffs.
A slow-down in the oil production business affects other parts of the economy, like the steel industry. U.S. Steel recently laid off 700 workers because expectations for future rig construction dropped, according to media reports.
Cheap oil is also disrupting the stock market.
As U.S. stockpiles of oil increased and the price significantly dropped, oil company shares plummeted. That is dragging down the whole market, which affects everyone. Analysts estimate that profit for all S&P 500 companies in total are on track to be down a recession-like 5.8 percent for 2015, according to The Associated Press.
Cheap oil is one reason your 401K may be performing poorly. Depending on your investments, you may have lost more in the stock market than you saved at the gas pump.
Steep drops in oil prices have historically been a sign of a weakening global economy, according to Bruce Kasman, chief economist at JPMorgan Chase. If that’s the case, U.S. companies that export to China or India or elsewhere will suffer. It’s already happening in some areas of manufacturing.
Julian Jessop, head of commodities research with London-based researchers Capital Economics Ltd, said an oil price of about $60 per barrel is the sweet spot where gas will be cheap enough to boost incomes but high enough to keep oil producers in business. As of Wednesday morning, it was about $30.
If oil prices rebound, and a gallon of gas ticks back up above $2, we likely should celebrate instead of griping. But it’s hard for most of us — except those in the oil production business — to see how cheap gas is hurting us. But if prices continue to plummet, it will be painfully obvious to everyone.