Low Oil Prices Boost Economy

Published March 2, 2015

A worldwide oil glut has caused the price of crude oil to fall below $50 a barrel since topping $100 a barrel in June. The price of gas at the pump has since averaged around $2.07 per gallon nationally for the past several months, far below the April 29, 2014 closing average retail price of $3.70 per gallon. That significant reduction of pain at the pump has translated into more money in people’s pockets and increased sales for certain businesses, such as convenience stores, airlines, manufacturers, and service providers.

Consumers who use heating oil are expected to reap a windfall. In New England, which uses more heating oil than any other region, families that use oil to heat their homes should enjoy an average savings of $1,200 to $1,500 this winter.

The airline industry is also set to receive a big boost in profits thanks to lower fuel prices. Industry experts predict a collective global net profit of $25 billion in 2015, up more than 25 per cent from an estimated $19.9 billion in 2014.

But the future is not rosy for everyone; some businesses will be hit hard by the declining oil costs. Low oil prices are forcing drillers to scale back operations and slash spending because it doesn’t make sense to continue production from marginal wells when oil is fetching $40 per barrel.

Ethanol producers are also concerned about the low gas prices because ethanol’s value as a substitute declines when oil prices are low.

Let the Good Times Flow

Low oil prices are an incredible boon to everyone who uses oil, which is pretty much everyone in the country, says Daniel Simmons, vice president for policy at the Institute for Energy Research.

“Every week, Americans are saving $2.4 billion in lower prices at the pump compared to last year. Lower oil prices not only help Americans who drive, but everyone else, because it means lower transportation costs,” Simmons said.

Low oil prices, however, are creating difficulties for the natural gas and oil industry, Simmons notes. “It’s kind of ironic that the people that created this great boon also are faced with the downside of lower prices. Hopefully, the oil producers prudently invested to weather these prices,” he said.

“Oil prices could remain low for quite a while,” he added. “Global oil supply has been increasing as global demand has remained stagnant. China’s economy is slowing, and Europe continues to struggle as well. Oil prices likely won’t rise until China or Europe’s economies are looking better.”

Kenneth Artz ([email protected]) writes from Dallas, Texas.