Here’s why the oil price decline isn’t so bad

Getty Images

There have been many conversations lately about the energy industry. Primarily, it’s been focused on the oil sector and the more than 50 percent decline in oil prices, the lowest it’s been in over six years.

Today many companies have cut back on their 2015 capital expenditures and been laying off employees by the thousands to stay competitive during turbulent market conditions. Consequently, the troubled waters for oil have been concentrated more so on the exploration side of the equation.

The other end of the oil discussion has been the praise from the everyday consumer who has been thrilled with the recent changes in the economic environment. For consumers of the commodity, they have seen lower prices at the pump, which have been over $4 a gallon of as long as I can remember. Now, gas is below $2 a gallon in many states because the US has been drilling at high capacities for almost three years.

Many businesses in logistics and travel have benefited hugely from the recent decline in the price of oil. Now, budgets that were allocated for higher fuel cost are now seeing enormous margins because fuel is so much cheaper.

The economy is thriving, and the dollar is stronger than ever, a big difference from the last time oil prices dropped this low. So now that lower oil prices aren’t contributing to a sluggish economy and a weaker dollar, is it so bad that we are experiencing the decline? Looking at it from a macro perspective, it has been great for the economy in the US, but on the micro side it is causing many upstream companies to reduce spending and their workforce.

This market change is just an example of how the invisible hand is causing the market to self-correct. Currently, the supply of oil is plentiful, and the demand will eventually catch up. Especially since exploration companies have put a halt on new drilling projects.

The future of the oil market is still uncertain, we polled our readers earlier in the year to find out their opinion on how low oil will go. At the current time, it was around $55 a barrel and has since has dropped below $43 and now is back above $47 again. I have seen all kind of analysis from very reputable organizations that have predicted oil prices could drop to as low and $20 a barrel. Some predict it could go all the way back up to as high as $200 a barrel.

Right now, only time can tell, but the market will see equilibrium sometime soon, and when it does, hopefully, the balance is beneficial to both the oil services providers and the consumers.

Be the first to comment on "Here’s why the oil price decline isn’t so bad"

Leave a comment

Your email address will not be published.


*