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Why lower gas prices are both good and bad for the US economy



Hundreds of thousands of oil workers lost their jobs a few years ago when crude oil plummeted to $ 26 a barrel. Dozens of energy companies went bankrupt. The business expenses declined. The energy stocks tumbled and drifted on Wall Street to chaos.
The United States has become a major energy company since the downturn of 2014-2016. Repealed by the Shale Revolution, US oil production recently surpassed Russia and Saudi Arabia for the first time since 1973. An increase in jobs at energy companies (and red states) such as Texas, North Dakota and Oklahoma could reverse as prices continue to decline.

"If we continue on the path we have chosen for crude oil, we would lose a lot of jobs," said Tom Kloza, global head of energy analysis at the Oil Price Information Service.

Gas Prices Decline Significantly

Favorable prices for oil and gas are no longer beneficial to the American economy. That's because the United States is the biggest consumer as well as the oil producer.

"When the president calls for lower oil prices, he ignores the new reality," wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a November report to clients.

Nevertheless, Trump tweeted on New Year's Day within an hour twice to celebrate the benefits of cheap gas.

"Do you think it's just lucky that gas prices are so low and falling? Low gas prices are like another tax cut!" Trump said on Twitter.

He is right that gas prices are low. The average gallon of regular gasoline received $ 2.25 on Wednesday, down $ 2.47 a month ago and $ 2.49 a year ago, according to AAA. Nine US states, including Texas, Ohio, and Missouri, currently enjoy average prices of less than $ 2 a gallon.

And analysts expect prices to continue to fall as holiday prices wane and bad weather keeps people off the streets. Kloza estimates that the average gas price for 2019 will be around $ 2.55 per gallon compared to $ 2.72 last year.

This is great news for American drivers who are compensating for some of the psychological pain caused by stock market turmoil. Analysts quoted cheap gas, which helped to achieve the fastest growth in holiday sales in six years.

"Gasoline prices are very important to consumers," said Russell Price, chief economist at Ameriprise Financial.

This is particularly the case for low-income families, where a sharp decline (or increase) in gasoline prices for paperbacks plays an excessive role.

Ameriprise estimates that every 10-cent change in average gasoline prices over the course of a year accounts for some $ 14 billion in consumer savings.

& # 39; Live & die & # 39; with oil

However, there are also negative side effects. Thanks to the shale oil boom, the energy sector now accounts for more of the economy than it did in the past. When prices collapse, energy companies freeze their spending and affect other sectors.

For example, according to Shepherdson, capital spending in the oil industry fell $ 149 billion during the recent downturn. That corresponded to the profit the consumers. However, the impact was not neutral. This is because spending has also declined in sectors dependent on the oil industry, including finance, transport and equipment.

Overall, Shepherdson estimates that the 2014-2016 oil spill wiped off US GDP growth in 2014 by 0.3 percentage points and 2015 by another 0.2 percentage points.

There are already signs of a significant slowdown in Texas The Permian basin has become one of the largest oil fields in the world. According to a report released on Monday by the Federal Reserve Bank of Dallas, production of the country, which was heavily fueled by oil and gas, fell in December to its lowest level since August 2016.

"We are living and dying from the price of oil," he said a manager of a machine manufacturer in the Dallas Fed poll. "With the oil field down, we see fewer orders."

Millions of Jobs

The oil industry is a major employer in states such as Texas, Colorado and North Dakota.

The American Petroleum Institute estimates that the oil and gas industry supports 10.3 million US jobs. This estimate probably includes related industries such as plastics, chemicals, transportation, trucks and gas stations.

While US oil production struck during the 2014-2016 crash, it rebounded rapidly, reaching record highs as prices recovered and companies figured out how to drill more efficiently. This recovery has led to significant employment growth in energy that Trump wore in the 2016 elections.

For example, Oklahoma's unemployment rate dropped from 4.1% in November 2016 to 3.3% last November, according to the Labor Department. In New Mexico, where part of the Perm basin is located, unemployment fell from 6% to 4.6% during this period. And Texas has created more than 365,000 jobs.

"If oil prices range between $ 40 and $ 45 a barrel, energy and energy investment will come under some pressure," Price said.

It's a new reminder that cheap gasoline both limits ways in today's economy.


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