Low interest rates are really great – for anyone needing a loan. For those with savings accounts, not so much. The price of gas and oil likewise cuts both ways. And for Southwest Colorado, low pump prices are a decidedly mixed blessing.
Compounding that is the all-too-human difficulty with the value of money, which makes it hard to grasp the magnitude of what we are experiencing. In real terms, 2016 could see oil prices at all-time lows. And the possible consequences of that could be as far-reaching as they are hard to predict.
Oil is now at roughly $37 per barrel. As The Wall Street Journal reported Thursday, that price reflects a $100 per-barrel drop in 2014 and another 30 percent to 35 percent loss in 2015.
For those who look only at the gas pump, that is great news. Gasoline dropped below $2 per gallon in some places, a nominal price that USA Today says is the lowest since 2009. Moreover, it also reported Thursday that experts predict the price will stay low, perhaps dipping as low as $1.79 before rising again to around $2.20 by year’s end.
A visit to the Bureau of Labor Statistics’ Consumer Price Index Inflation Calculator helps put that in perspective. In 1980, gasoline sold for about $2.25. But a dollar bought a lot more 35 years ago. Indeed, $2.25 in 1980 had the same purchasing power as about $6.50 in today’s dollars. In other words, real pump prices now are less than one-third what they were in 1980.
Interesting enough, paying those prices did not kill the local economy, even as dependent as Durango was on tourism, which one would think would be affected by higher travel costs. The answer, of course, is that much of Durango’s tourist market was in areas that benefited from high oil prices.
What did hurt – and badly – was when the price of oil plummeted about six years later. Durango in those days was much more tied to the economies of Texas and Farmington, and when they went broke, Durango did too. There were bumper stickers that said, “Last one to leave Durango, turn out the lights.”
That is not a prediction for 2016. Many things have changed in 35 years, including Durango’s economy. Today, it is likely that lower-priced oil will help Southwest Colorado more than hurt it. But it is a reminder that low oil prices are not an unmitigated good.
La Plata County has learned the same lesson with natural gas prices. It is nice to have lower heating bills and even better to see coal-fired power plants converted to cleaner gas. But it was also nice having gas producers paying more of our property taxes.
Oil prices are said to be low because there is a glut caused by the boom in U.S. production (see: shale, fracking), the worldwide economy and Saudi Arabia’s continued high levels of production. The Saudis reportedly do not want to lose market share and would not mind seeing some of their U.S. competition trimmed back.
As always, there are more forces at play than are easily understood. But in any case, if the past is any indication, there will be ramifications to the oil glut that should make 2016 an interesting year.
