With dropping oil prices this winter, college students are grinning with extra cash leaving the gas station, but the price of oil dropping below $50 a barrel has far more reaching consequences than extra cash.
The average gallon of gas in the U.S. sits around $2.05, according to the White House. Lower gas prices took a spotlight in Tuesday’s State of the Union address, with President Obama touting the country’s superior oil standing.
“Thanks to lower gas prices and higher fuel standards, the typical family this year should save about $750 at the pump,” said Obama.
Oil prices have been notoriously high for the past 10 years due to a rise in oil demand and a lack of supply. Yet at the end of 2014 prices started plummeting due to inaction on the part of the Organization of the Petroleum Exporting Countries (OPEC). They were expected to cut oil production and therefore increase gas prices but instead, they chose not to rock the boat, according to vox.com.
Suddenly, the world is awash with oil that has nowhere to go, and it’s affecting more than the average U.S. citizen’s savings at the pump.
So far, the U.S. oil industry is beginning to counteract the lower prices with layoffs. U.S. Steel Corp. will lay off more than 750 workers and temporarily idle its plants in Texas and Ohio. Baker Hughes, an oil field service corporation, announced the layoff of 7,000 workers Tuesday.
“When we reflect on the marketplace, the bearish sentiment that has pervaded our industry is understandable, considering the steep drop in commodity prices in recent months,” said Baker Hughes Chairman and CEO Martin Craighead in their fourth quarter and annual results report.
“We are taking proactive steps to manage the business through these challenges,” said Craighead.
Besides, the U.S., Russia and Saudi Arabia are two of the world’s largest oil producers. The export of crude oil and natural gas accounts for 68 percent of Russia’s budget revenue. In Saudi Arabia, oil accounts for nearly 90 percent of the budget revenue.
“In terms of production and pricing of oil by Middle East producers, they are beginning to recognize the challenge of U.S. [oil] production,” said Robyn Mills, Manaar Energy’s head of consulting, in an interview with BBC.
Russia, who is facing a possible recession after surmounting economic sanctions due to the continuing Ukraine crisis, is also going to try to ride out the storm and wait for the economy to balance itself once again.
Likewise, U.S. consumers must remain aware of the fluctuations of the American economy, something that the recent past has shown to be dangerous.