Gas for $2?
Oct 28, 2014, 7:22 AM | Updated: 7:54 am
FILE - In this Sept. 30, 2014 file photo, Dana Ripley, of Winthrop, Mass., fills the gas tank of his truck at a service station in Andover, Mass. A swoon in the price of oil is lowering fuel bills for drivers, shippers and airlines, but it is not without downsides for both the U.S. oil boom and the broader economy. (AP Photo/Charles Krupa, File)
(AP Photo/Charles Krupa, File)
The price of oil has dropped to around $75 a barrel and that’s pulling the price of regular under $3 a gallon in some cities.
You’re tempted to give the credit to fracking and the free market.
But in Houston, business writer Chris Tomlinson of the Houston Chronicle says this is not just about supply and demand.
“The oil market has never been a truly free market,” explains Tomlinson.
In most oil producing countries, governments set the price – and usually keep it artificially high.
“Fundamentally, oil prices are political. Saudi Arabi produces oil at between $10 to $15 a barrel. They could undercut us tomorrow and destroy the U.S. oil industry if they were willing to take that political heat from Washington,” says Tomlinson.
The U.S. oil industry doesn’t want the price to drop any further because fracking is expensive. U.S. companies need a price of about $80 a barrel to make drilling new wells worthwhile.
“If it drops below $80 though, and stays below $80, then a lot of these companies are going to have to rethink the economics of each of their future wells.”
The bottom line: Enjoy the cheap gas now, because it may not last.
… And be glad you don’t live in Russia.
“Their government’s budget relies on oil revenues to support social services to meet their budgetary needs. They need $90 barrel oil,” Tomlinson says. “So this is going to hurt Putin and the Russian economy more than it hurts anyone in Texas.”
Golly. I know none of us wants to see Vladimir Putin hurt.
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