Why the Low gas prices?

March 9, 2016

Why the Low gas prices?

 

During breakfast this morning, my son commented that it was great that gas prices were so low. I thought to myself that is probably what most people think. Don’t get me wrong, more in our pocket is better than less but that is a very narrow view of things. I began to explain to him that oil and gas is an important part of our economy and probably one of the most important factors in respect to our economic health. Many jobs depend on the oil and gas industry and when this industry suffers so does our economy.

There are so many considerations that effect the price of oil from political, regulatory to consumer habits. The price of a barrel has gone from over $100 a barrel to less than $30 in less than 2 years. This is devastating to the industry. Many gas wells are sitting idle and jobs are lost. So, why the sudden drop in prices? I drifted back to my old days sitting in my economics class back in college. I realized, yes, the principals I learned back then still hold true. The old “supply and demand” theory. Right now we have an excess of supply and a weaken demand. For years China was sucking up oil as their economy was expanding at an incredible pace. Now, China is having many problems and has reduced their demand. We have increased supply due to increased efficiencies in the industry. New advances in their location and extraction techniques has led to greater supplies. Plus, what many do not think of is that we have not had a weather related interruption in a while. There are many oil extractions in the gulf and when a hurricane hits, it shuts down those facilities and, in turn, drives the price up.