question about low gas prices and the economy

[hoodleehoo]

Okay, I'm kind of a dunce when it comes to this stuff, so bare with me.

I live in Oklahoma, and there's a lot of debate about the impact of low oil prices on our economy. There's also debate on what is causing the low prices.

QUESTION #1

What is the cause? From what I could find online, it seems the consensus is that the cause of low prices is from lower demand for foreign oil caused by:

1) non-US countries struggling economically and not able (or needing) to buy as much foreign oil.

2) Domestic US oil is actually at a surplus right now because of shale oil, horizontal drilling, and fracking. "Experts" say we now have enough to last us at least a couple hundred years. So, we have less need for foreign oil.

---------------

QUESTION #2

Why would this impact our economy in a bad way? Oklahoma is an energy state which I assume means there are 3 primary ways we are employed by energy companies...

1) People work for domestic energy companies.

2) People work for companies who buy and sell foreign oil.

3) People work for companies who do contract work over in the middle-east.

I can understand why people who do contract work overseas would be negatively impacted, but why would the other companies be hurting?

Domestic energy companies should be doing really well if the rise in domestic energy is causing less demand for foreign oil, right?

And companies who buy and sell foreign oil shouldn't be affected by falling prices since it shouldn't affect their margins, right? The oil they buy is less so they can sell it for less, but the profit margin should stay the same. Am I missing something here??

 

[Moonglow]

capital cost and labor cost versus oil price...if oil is selling for less than what it cost to produce it will cause oil production to decrease...

 

[Mad Scientist]

Prices are falling because of a global recession, low demand and Saudi Arabia not cutting production.

I think the House of Saud is doing this as an attack on Iran and Russia.

After the US shale and fracking industries are shut down The House of Saud will use their hard earned monopoly and allow prices to rise. I wouldn't be surprised to see 5 - 10 dollars a gallon at the pump.

 

[Pogo]

Prices are falling because of a global recession, low demand and Saudi Arabia not cutting production.

I think the House of Saud is doing this as an attack on Iran and Russia.

After the US shale and fracking industries are shut down The House of Saud will use their hard earned monopoly and allow prices to rise. I wouldn't be surprised to see 5 - 10 dollars a gallon at the pump.

I think that's mostly accurate, except for the hyperventilating last line.

 

[Moonglow]

The Saudis are already aggressively taking over markets in Europe and Europe just okayed the sanctions on Russia...

 

[fmdog44]

Being a contractor to BP, Chevron, Kerr McGee, Exxon, Hess and Tullow I can tell you contracts are drawn up in part with the price of a single barrel of oil in mind When the price sinks then layoffs start as the cost to produce is now the problem. We see layoffs now starting in many areas. The Saudis simply won't close their valves and we here have a glut. One theory of my own is why not perpetuate this low price crushing all hope in Russia to survive and run Putin out of town? Preposterous? Really? We will be at the 45- 50 to low 50's for another year.

 

[Moonglow]

Being a contractor to BP, Chevron, Kerr McGee, Exxon, Hess and Tullow I can tell you contracts are drawn up in part with the price of a single barrel of oil in mind When the price sinks then layoffs start as the cost to produce is now the problem. We see layoffs now starting in many areas. The Saudis simply won't close their valves and we here have a glut. One theory of my own is why not perpetuate this low price crushing all hope in Russia to survive and run Putin out of town? Preposterous? Really? We will be at the 45- 50 to low 50's for another year.

My sister worked for Kerr-McGee in the 1980's....we moved out of OKC in 1985...

 

[hoodleehoo]

That jives with my point about contractors being hurt. But it still doesn't explain why domestic energy companies would be hurting (if they are) or why the companies who buy and resell the oil would be hurting. I'd think their profit margins would remain the same. Demand here for oil hasn't gone down (at least not much) and we can only get it from these companies, we can't get it straight from the middle east. So why would profit margins change?

 

[fmdog44]

The service companies like Schlumberger and Oceannering among many others will get hurt and already being hurt. They have nowhere to go if the oil is not pumping or new wells being drilled.