Lower Oil Prices Provide Benefits to U.S. Workers

[cpzilliacus]

N.Y. Times: Lower Oil Prices Provide Benefits to U.S. Workers

LEWISTON, Me. – Wall Street may be growing anxious about the negative impact of falling oil prices on energy producers, but the steep declines of recent weeks are delivering substantial benefits to American working-class families and retirees who have largely missed out on the fruits of the five-and-a-half-year economic recovery.

Just last week, the federal Energy Information Administration estimated that the typical American household would save $750 because of lower gasoline prices this year, $200 more than government experts predicted a month ago. People who depend on home heating oil and propane to warm their homes, as millions do in the Northeast and Midwest, should enjoy an additional savings of about $750 this winter.

"It may not have a huge effect on the top 10 percent of households, but if you're earning $30,000 or $40,000 a year and drive to work, this is a big deal,"  said Guy Berger, United States economist at RBS. "Conceptually, this is the opposite of the stock market boom, which was concentrated at the top."

[corco]

Unless you're an American worker that works in the oil fields, in which case you don't have a job- more than 24,000 people that had good paying jobs a week ago don't have jobs today, and it's only beginning:

http://trib.com/business/energy/layoffs-begin-rig-count-falls-amid-low-oil-price-projections/article_d6108ac2-bdbe-5877-b915-bdfa6183bf5f.html

http://www.forbes.com/sites/christopherhelman/2015/01/14/layoffs-hit-the-oilpatch-with-worst-yet-to-come/

http://abc13.com/business/layoffs-hit-houston-amid-oil-prices-plunge/478352/

http://fuelfix.com/blog/2015/01/14/apache-workers-face-layoffs-as-oil-prices-fall/

http://www.theadvertiser.com/story/news/2015/01/15/halliburton-confirms-minimal-layoffs-lafayette/21814953/

Personally, given the choice between having energy independence and good paying jobs for hundreds of thousands of American workers or having all the nice effects of cheap gas, I pick the former. I'd rather give $3/gallon to American or Canadian oil workers than $1.80/gallon to the Saudis.

[Pete from Boston]

Unless you're an American worker that works in the oil fields, in which case you don't have a job- more than 24,000 people that had good paying jobs a week ago don't have jobs today, and it's only beginning:

http://trib.com/business/energy/layoffs-begin-rig-count-falls-amid-low-oil-price-projections/article_d6108ac2-bdbe-5877-b915-bdfa6183bf5f.html

http://www.forbes.com/sites/christopherhelman/2015/01/14/layoffs-hit-the-oilpatch-with-worst-yet-to-come/

http://abc13.com/business/layoffs-hit-houston-amid-oil-prices-plunge/478352/

http://fuelfix.com/blog/2015/01/14/apache-workers-face-layoffs-as-oil-prices-fall/

http://www.theadvertiser.com/story/news/2015/01/15/halliburton-confirms-minimal-layoffs-lafayette/21814953/

Personally, given the choice between having energy independence and good paying jobs for hundreds of thousands of American workers or having all the nice effects of cheap gas, I pick the former. I'd rather give $3/gallon to American or Canadian oil workers than $1.80/gallon to the Saudis.

This is the risk when gambling in major investments that only pay off if a fluid commodity market stays at a high extreme.

[hbelkins]

Personally, given the choice between having energy independence and good paying jobs for hundreds of thousands of American workers or having all the nice effects of cheap gas, I pick the former. I'd rather give $3/gallon to American or Canadian oil workers than $1.80/gallon to the Saudis.

It's not really an either/or proposition.

I'm waiting for the costs of other goods and services to go down because the price of gas is going down. Hasn't happened yet.

Heck, Kentucky's 4.3-cent drop in gas taxes hasn't shown up at the pump yet. Prices have basically stayed the same, meaning station owners have pocketed the tax decrease.

[Pete from Boston]

Drop in gas tax?  Kentucky's roads are good enough to do that?

[cjk374]

It doesn't matter the price of gas as far as taxes are concerned.  The normal amount of gallons will be purchased, at x-cents of tax per gallon no matter the price.

[corco]

Personally, given the choice between having energy independence and good paying jobs for hundreds of thousands of American workers or having all the nice effects of cheap gas, I pick the former. I'd rather give $3/gallon to American or Canadian oil workers than $1.80/gallon to the Saudis.

It's not really an either/or proposition.

I'm waiting for the costs of other goods and services to go down because the price of gas is going down. Hasn't happened yet.

Heck, Kentucky's 4.3-cent drop in gas taxes hasn't shown up at the pump yet. Prices have basically stayed the same, meaning station owners have pocketed the tax decrease.

How would you propose getting oil extracted from oil shale down to a per barrel price that results in gas being $1.80 per gallon?

This is the risk when gambling in major investments that only pay off if a fluid commodity market stays at a high extreme.

True. That being said, given the turmoil in the Middle East I see it as a national security issue for North America to have a stable, operational supply of oil coming in. Since fracking generally breaks even at around $55 a barrel by all accounts, and becomes actually profitable enough to warrant private companies coming in at something like $65-$75, we'd need to cut our imports of foreign oil to get an average gas price that stabilizes somewhere around whatever that looks like.

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

[hbelkins]

Drop in gas tax?  Kentucky's roads are good enough to do that?

Years ago, when the price of gas was going up up up with no signs of slowing down, Kentucky's legislature tied the gas tax to the wholesale price of gas. The thought was that as the price increased, use would decrease and tax revenue would go down, so they needed to do something to offset that loss in revenue. But it's happening in reverse now. Because the price went down so much last year, the gas tax went down at the first of the year and will probably go down again in April.

How would you propose getting oil extracted from oil shale down to a per barrel price that results in gas being $1.80 per gallon?

Tax breaks for domestic oil production is one way.

[corco]

Drop in gas tax?  Kentucky's roads are good enough to do that?

Years ago, when the price of gas was going up up up with no signs of slowing down, Kentucky's legislature tied the gas tax to the wholesale price of gas. The thought was that as the price increased, use would decrease and tax revenue would go down, so they needed to do something to offset that loss in revenue. But it's happening in reverse now. Because the price went down so much last year, the gas tax went down at the first of the year and will probably go down again in April.

How would you propose getting oil extracted from oil shale down to a per barrel price that results in gas being $1.80 per gallon?

Tax breaks for domestic oil production is one way.

If you're talking federal, I can maybe get behind that as long as it also penalizes those who import oil from non NAFTA/EU jurisdictions. At the state level, I'd be adamantly opposed and you'd be hard pressed to find a legislator in the very conservative areas of eastern Montana and western North Dakota where the boom mainly is that would support doing that.

In Montana, oil production tax is fed right back into communities in eastern Montana for infrastructure investment. These communities are dealing with an unprecedented boom and local governments are struggling with very basic government functions like keeping raw sewage from piling up in the streets.

If the boom continues, and we have a stable situation develop and have the infrastructure in place, you can start to have that conversation, but right now the only way to fund the projects needed without raising taxes is to borrow money, which our conservative legislature opposes. Fortunately, they support keeping taxes at a reasonable level.

Right now, these boom areas are still very much being built. One of the big problems is the transient workforce- nobody wants to live in Sidney, Montana or Williston, North Dakota and oil rig work is a career that only young men are really physically suited for, so nobody buys property. This means there's thousands of RVs randomly chilling up there, not paying local property taxes with their income, dumping sewage in the streets or in storm sewers or in various places that sewage should not be dropped. Rental housing is fully occupied anyway, and that's led to a bunch of very quickly constructed, cheaply built apartment complexes that are overwhelming wastewater systems that were never designed for that kind of capacity.

Roads are getting absolutely decimated up there due to the construction equipment- they were never good before, and now they're absolutely awful.

Oil and gas tax money is used in Montana to do things like grade the roads, make sure government has fire trucks since oil rigs tend to have fires, and install water/wastewater infrastructure to support an increased population.

The cost of labor is so high that tax dollars don't cover that much. County road crew guys have to be paid $25-$30 an hour now  where they were making $12 an hour four years ago because they can make that much working in the oil fields. Private contractors are already overworked, so they charge accordingly- we call it the "Bakken Premium."

Entire cities are essentially having to be built, 100% because of this boom. That's where state level oil production money is going, and I don't really see any other viable funding mechanisms to cover that.

Honestly, the upside to this dip is that since it's hopefully temporary it will give these jurisdictions time to play catch-up. If adequate housing/water/wastewater are put in to make these places not absolute hellholes to live in, perhaps that will help to normalize wages and increase property ownership by rig workers, which could lead to oil companies having to pay workers less and more property tax money coming in from those workers, making it possible to lower oil/gas production tax.

[Pete from Boston]

Personally, given the choice between having energy independence and good paying jobs for hundreds of thousands of American workers or having all the nice effects of cheap gas, I pick the former. I'd rather give $3/gallon to American or Canadian oil workers than $1.80/gallon to the Saudis.

It's not really an either/or proposition.

I'm waiting for the costs of other goods and services to go down because the price of gas is going down. Hasn't happened yet.

Heck, Kentucky's 4.3-cent drop in gas taxes hasn't shown up at the pump yet. Prices have basically stayed the same, meaning station owners have pocketed the tax decrease.

How would you propose getting oil extracted from oil shale down to a per barrel price that results in gas being $1.80 per gallon?

This is the risk when gambling in major investments that only pay off if a fluid commodity market stays at a high extreme.

True. That being said, given the turmoil in the Middle East I see it as a national security issue for North America to have a stable, operational supply of oil coming in. Since fracking generally breaks even at around $55 a barrel by all accounts, and becomes actually profitable enough to warrant private companies coming in at something like $65-$75, we'd need to cut our imports of foreign oil to get an average gas price that stabilizes somewhere around whatever that looks like.

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

If we've gotten these operations up and running after years of high oil prices convinced companies to pursue them, is it not enough that we can get contracting operations up and running if the supply is constrained again?  Employment shouldn't be the goal–shouldn't employment come from the most viable sectors in a free economy, not promoted in certain sectors artificially?

[corco]

Personally, given the choice between having energy independence and good paying jobs for hundreds of thousands of American workers or having all the nice effects of cheap gas, I pick the former. I'd rather give $3/gallon to American or Canadian oil workers than $1.80/gallon to the Saudis.

It's not really an either/or proposition.

I'm waiting for the costs of other goods and services to go down because the price of gas is going down. Hasn't happened yet.

Heck, Kentucky's 4.3-cent drop in gas taxes hasn't shown up at the pump yet. Prices have basically stayed the same, meaning station owners have pocketed the tax decrease.

How would you propose getting oil extracted from oil shale down to a per barrel price that results in gas being $1.80 per gallon?

This is the risk when gambling in major investments that only pay off if a fluid commodity market stays at a high extreme.

True. That being said, given the turmoil in the Middle East I see it as a national security issue for North America to have a stable, operational supply of oil coming in. Since fracking generally breaks even at around $55 a barrel by all accounts, and becomes actually profitable enough to warrant private companies coming in at something like $65-$75, we'd need to cut our imports of foreign oil to get an average gas price that stabilizes somewhere around whatever that looks like.

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

If we've gotten these operations up and running after years of high oil prices convinced companies to pursue them, is it not enough that we can get contracting operations up and running if the supply is constrained again?  Employment shouldn't be the goal—shouldn't employment come from the most viable sectors in a free economy, not promoted in certain sectors artificially?

It took four or five years to get fracking going- we started in 2008 or so and only hit a substantial capacity in 2012. Ostensibly we could "reboot" more quickly with the equipment in place, but the longer it sits mothballed the more time it would take to get going. When you have a limited number of engineers that understand how this stuff works, it's a question of capacity moreso than willpower, so while you might be able to expedite things in a wartime scenario, there'd still be limitations. 

I'm thinking if this happens overnight from a defense perspective- say somebody overthrows the Saudi government or something and immediately stops oil exports to North America. If that happened tomorrow, we'd be fine. You'd recall the laid off people, get them going, and life would be good. If these low prices continue and our stuff sits idle for a few years, we might have a problem.

Maybe our society doesn't value being prepared for a worst-case national defense scenario, and that's understandable- it's a judgment call at the end of the day, and my opinion is that it's good to be prepared for not having access to foreign oil given how unstable the countries that can cheaply produce oil are. The fact that it means good-paying jobs for American citizens is icing on the cake. Yours may differ, and that's fine. 

[hbelkins]

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

This is the first time I've ever seen it posited that it's goodfor national security to be buying foreign oil.

[algorerhythms]

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

This is the first time I've ever seen it posited that it's goodfor national security to be buying foreign oil.

Considering ISIS, which the media is telling us is the end of the world, got much its startup funds from Saudi Arabia, would it really make that much of a difference if the Islamists took over there? If ISIS is such a threat to us, then why should we support the Saudis (and by extension, ISIS) by buying their oil?

[corco]

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

This is the first time I've ever seen it posited that it's goodfor national security to be buying foreign oil.

I'd caveat that my opinion is that even if we do need to prop up oil monarchies for national security, I still think having a domestic oil supply is more important than doing that and my preference would be to tariff foreign oil tomorrow to raise the prices back up to support domestic drilling despite the other costs, partially for the reasons algorerhythms just cited.

[hotdogPi]

Unfortunately, we can't cut our imports of foreign oil for national security reasons. OPEC members may not be our allies, but they are stable governments for the most part, and we'd certainly rather not send Saudi into an economic depression because we've stopped buying oil from them, causing their government to potentially be overthrown by an Islamist regime.

This is the first time I've ever seen it posited that it's good for national security to be buying foreign oil.

Considering ISIS, which the media is* telling us is the end of the world, got much its startup funds from Saudi Arabia, would it really make that much of a difference if the Islamists took over there? If ISIS is such a threat to us, then why should we support the Saudis (and by extension, ISIS) by buying their oil?

The media are usually trying to scare us. It is not usually as big of a threat as they say it is.

*It's a common mistake. But it should be "are".