Filed under: Energy, Gas Prices, Industry News, Oil & Gas Industry, Economy
Gas at the pump is as cheap as it's been in years, which makes consumers happy. But there are many other potential implications of the slide, and not all of them are so cheery.
Higher Gas Prices
Yes, gas prices have dropped sharply, but don't assume they will necessarily stay that way. Lower costs for consumers have made some lawmakers eye higher gas taxes, according to Reuters. That includes Democrats and Republicans. Although federal officials are worried about increasing gas prices for fear of angering voters, there is the thought that as things get cheery at gas stations, people might not notice some extra tithing. Expect states to also consider whether they could fill government coffers. Pennsylvania already did with a recent hike in gas taxes, according to The Mercury, although that had been in the works for a while.
Some Housing Prices Could Drop
Oil is a big source of private, and not just public, income in some parts of the country. Prior to the global price drop, times were good, and the money was rolling in. If prices stay low for an extended period, that will hit the wealth of many and potentially cause a decline in home values in areas with a high concentration of energy jobs, according to Fortune. Such a decline would take until late 2015 or sometime into 2016 to become obvious, but it would be a blow to the chance of regaining real estate values after the Great Recession in those areas.
Tar Sand Oil Could Take a Beating
One reason pulling the oil out of tar sands in areas of Canada has been big business was the overall cost of oil. When oil is $100 a barrel, companies can invest a lot and still make a tidy profit. But the technology and work needed requires oil prices of at least $65 to $75 per barrel, according to USA Today. Long term, the areas that had been extracting oil from tar sands could hit a major local recession.
Keystone Pipeline Not So Sure
The Keystone Pipeline, already a point of contention between a Republican Congress and President Obama, has been touted as a job creator. There's room for debate as to the number and duration of jobs, but what isn't in question is why the pipeline would be built: to carry tar sand oil from Canada to ports in the southern U.S. If the tar sand oil is too expensive to produce over a long period, what good would a pipeline do? Obama's promised veto of a bill to start the new Keystone pipeline, as AOL reported, might be the least of its problems.
Many Countries Would Be Hurt
Whether you're talking of the Middle East, Russia or parts of Africa or South America, oil is important business. The flow of crude helps keep the flow of government revenue coming in. But as the BBC has reported, data from Deutsche Bank and the International Monetary Fund shows that 11 countries depend on particular crude prices to balance their budgets. That ranges from a low of $77 for Qatar to $184 in Libya, which has a lot of rebuilding left after the recent civil war. Russia, which has seen the value of the ruble take a nosedive, needs $105. Venezuela must have $118 a barrel to keep the lights on and voters happy. Economic problems in so many places could become a major destabilizing force in the world.
Stock Prices Face a Challenge
For many investors, oil is a proxy for economic health. Prices drive up because there's more commerce. When they drop, it's the opposite. According to the Associated Press, low oil prices have already had an impact on the stock market. If crude continues to be cheap, equity investing could turn ugly.
It's a Good Day for Fracking
For all the bad news, those involved with hydraulic fracturing -- otherwise known as fracking -- will find themselves in a strong position, even as states like New York try to end the practice. But fracking is one of the reasons that oil prices are currently low, as it has helped significantly increase production. All those with concerns about any possible link to unusual seismic activity or problems with groundwater may find that dollars trump the ecology.
