For drivers planning their holiday travel, the precipitous drop in gas prices seen during the last two months is welcome. Each day, pennies fall from the per-gallon cost of fuel: As of Thursday, the national average for regular gas was $2.47 per gallon. In Colorado, that average was $2.46, and in Durango it was $2.51 – down from $2.54 on Tuesday. The lower bill at fuel pumps leaves consumers more dollars for holiday shopping, travel or general expenses. It provides relief in an economy of depressed wages and too many people out of work and living with limited resources.
The picture, though, is much larger and somewhat mixed in its hue. Among the primary drivers of the dropping price of oil – crude oil futures were down to $54.11 on Thursday from just over $100 per barrel in July – is a dramatic uptick in domestic production, owed largely to fracking technology that makes shale oil recovery an economically feasible endeavor. That this oil yields natural gas as a byproduct has had implications for local gas extraction and the corresponding local economy.
But on the larger stage, as U.S. oil production has risen, and global oil demand has waned for various reasons – including a slow but steady shift to alternative energy sources – the price of oil has correspondingly dipped. In simple, politics-free economic modeling, this would trigger a reaction on the production side to bring supply back in line with demand, thereby moving closer to market equilibrium. If ever there were an actual economic problem that did not include politics as a factor, though, oil was surely not involved. Saudi Arabia, whose low production costs of $5 to $6 a barrel and $900 billion in savings, can weather a low-price storm and intends to seed the clouds by announcing it has no plans to decrease its production. OPEC is playing along, despite the effect on some member countries’ economies: The consortium will not turn down the spigot. Some win, others less so. Russia is clearly in the latter camp for now. The United States, with a far more diversified economy, can perhaps afford a decline in oil prices – but not without some casualties.
The cost of gathering oil varies according to its source, and the shale oil abundant in the U.S. is far more costly to extract than traditional large fields. Many large shale-oil producers use $80 as the per-barrel market price that informs their production decisions. At $54 and falling, those numbers do not look good for U.S. shale-oil production. That might be OK, given that domestic drilling resembles resource booms of yore and curbing the mania somewhat is to be expected. Rather than extract every drop of oil as quickly as possible, it is not unwise to leave it in the ground for when it is needed. But the jobs and infrastructure that have erupted around the shale boom will certainly suffer in the offing, and finding ways to transition those human and other resources into new endeavors is a critical next step – whether it must be taken immediately or not. Planning for such inevitabilities associated with boom economics is not easy, particularly when the variables are far-reaching and wide-ranging.
The effects of oil economics are familiar to Southwest Colorado specifically, and the state in general. The effects – short, medium and long-term – of the 40 percent price plunge the last six months has brought will depend largely on wise planning, forward-thinking and how the dice are rolled. In the meantime, at least gas-station visits are less painful than years past.
