Most people have a lot to smile about at the pump these days, however, many oil producing locations and small businesses in the oil industry are hurting from the recent decline in crude oil prices.
Tupper Hull, vice president of communications at Western States Petroleum Association explained the key factors of the recent decline in gas prices, one factor being over production. “In the laws of supply and demand when you have an increase of supply, demand is either static or declining, prices typically react by going down,” said Hull.
According to Hull, Saudi Arabia, the biggest member of OPEC, is not slowing down production, despite the fact they too are not benefiting from overproduction of oil. “I think the conventional wisdom among analyst is that the Saudis made something of a political calculation; there are countries that are heavily dependent on the revenues from the sale of their oil to finance their government operations and their social service programs. It seems to be the decision on the part of the Saudis to try to stress the economy of those countries, presumably or perhaps influence a change of government in those jurisdictions.”
Also, the anti- fracturing movement, or according to Hull, the anti- oil movement, is contributing to slowing oil production in the US. “These are very large organizations that are determined to either impose a moratorium on hydraulic fracturing or to create barriers to it. It’s our view and it’s my belief that an examination of the facts will prove out that these organizations just fundamentally would like to see oil production on California stopped.”
It’s not just oil companies suffering from declining gas prices; oil service companies are struggling just as much. Hull says many service companies have recently been forced to lay off employees. “Whether or not it impacts the overall employment picture or economic growth, whether that shows up, statistically really is something only time will tell,” said Hull.
It’s no secret residents of Kern County are hit harder than most regarding the declining gas prices, but according to Hull, the current price trend for gas is affecting more than just careers. “Kern County has adopted a fiscal emergency declaration. This is the result in anticipated declines in property tax payments. In oil producing areas, the property is assessed based on what the current value of the oil in the ground is. It was 100 bucks a year ago, and its 50 dollars today, that means, the property tax revenues from oil producing areas is cut in half. That’s a big, big hit to Kern County,” said Hull.
Hull says fortunately the sustainability of this current trend is likely temporary. “I’m not seeing a sentiment expressed in the oil industry that the pricing situation today is permanent but there seems to be pretty wide disparity of views about how long they perceive this current low price trough to stick around.”
Carlton Carroll, a spokesman for the American Petroleum Association says this current trend shouldn’t deter investors or governmental support. “EIA projects that from 2013 to 2040, global consumption of liquid fuels will rise by 30 percent. U.S. oil and natural gas producers make investment decisions based on long-term expectations, not short-term prices, and our government should do the same to support energy security,” said Carroll.
Carroll mentions some ideas that would benefit the current state of the oil industry. “What the industry needs is smart energy policies that will create jobs. We need to enhance LNG exports, repeal the crude exports ban and approve the Keystone XL pipeline all of which will create tens of thousands of good paying jobs.”