I like how we seem to act like all of this was a surprise. The OPEC movement to harm the production of the shale oil exploitation as well as American oil production goes on unchecked and Americans are largely unaware except for the fact that gas is now cheap. For years these OPEC mo-fos helped drive the price of oil through the roof, until we were busy paying $4 a gallon here in the United States, and while that was expensive it was still some of the lowest priced gas in the civilized world. It seems that no one is willing to talk about the problem that is OPEC on the United States economy or how the United States is leading the world in oil exports…something that OPEC is generally opposed to.
But now with oil under $50 a barrel we are starting to see the pinch in business…not our wallets…in our business. Gas is down to under $2 a gallon in many locales, and not much higher in most of the rest of the United States. But, this drastic reduction in the price of gasoline and crude oil has a profound effect on the American economy when it comes to energy production. When drilling contracts are being abandoned and receiving early cancellation notices, the United States is going to have an energy problem and energy problems lead to economic problems. If we can’t afford to get the oil out of the ground because there is no profit in it then American oil production will shrink and domestic oil supplies will shrink. Even the prince admitted in the article that the feasibility of sustained exploitation of shale gas and oil remain iffy as the price remains below $50 a barrel.
Now I’ve heard people talking about how wonderful it is to fill up their SUV for $40 and their car for $20…and that was wonderful, when we could afford that price. The problem now is that too much of the actual economy is tied up in energy production. Approximately 25% of the S&P 500 is involved in energy production. Look at stock portfolios in the US, what do a lot of them contain…oil and tobacco, because both tend to be steady and post gains. Yet people are watching 30-50% of their hard-earned retirement money go up in smoke overnight. When it becomes too expensive to drill a lot of these jobs are going to dry up. As the jobs dry up or are no longer needed the unemployment numbers go up…and can we really afford a U6 of over 11.2% which is what it currently is at? Not really if we are still working towards economic recovery. People with jobs may gripe about $3-4 gas, but people without jobs can’t even afford $2 gas so where should the concern lie?
And I’m not saying this is going to happen overnight, this is a 8 month to a year-long fight ahead of us where we watch and cheer about the price of our gas going into our cars but lament and moan about our portfolios and the energy jobs market. One is eventually have to give, or a middle ground nearer to $65-75 a barrel needs to be achieved.
Think about it.