Oil and the economy

No one in the oil business or on Wall Street every felt a modicum of guilt when it was trading for $140 a barrel and we were paying $4-plus for a gallon of gas. So excuse me for not feeling any guilt whatsoever about paying $2.08 a gallon and (hopefully) having some price-fixing speculator take it straight up the ying-yang, with authority, now that the price of crude has dropped like a led balloon.

Too had if some poor Saudi has to cut back to four mansions and six Mercedes, and if the industrial environmental terrorists turning western North Dakota into the world's largest Superfund site have to cut back.

 

The Saudis are not suffering. And if their strategy works they will have achieved a number of goals, as my column explained.

It costs maybe ten bucks at the well head to extract Saudi oil. Theirs is the cheapest in the world. So if they cut production and the reduced supply sent oil to $100 they would be awash in even more cash and Americans would be paying closer to four bucks a gallon.

The major reason you can buy cheap gas is the Saudis. They are not cutting production, which is what is producing lower prices.

 

Shit ... it's time for the federal government to do this ...

 

Low fuel prices help the working class and the poor the most, so why are liberals so dedicated to higher taxes on fuel -- and, indeed, higher prices for fossil fuels?


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.”
...
For many residents of the bone-chilling state of Maine, the plunge in energy prices adds up to more than just a few extra dollars in their pockets and purses at the end of the month.

Take April Smith, a home health aide, and her husband, Eddie, who works in the auto services department of the Walmart in Brunswick, Me. Together they bring in about $42,000 a year. For them, the decline in energy prices means being able to put meatloaf on the table instead of serving their four children hot dogs, ramen noodles and macaroni and cheese.

nyti.ms/1ueJjmZ

 

A story I saw late last week (cnbc.com, I think) indicated that as many as half of the oil rigs permitted in Texas will be idled in the next four-six weeks, and as many as 125,000-140,000 people in the oil sector there might be unemployed over the next six months. Whether any of this has to do with the Saudis or OPEC, I don't know.

 

There are winners and losers in the economy all the time.

How many construction jobs will be created because of low fuel prices? How many auto workers won't be idled because of low fuel prices (or will be working overtime as a result)?

And, if oil ticks up, production in Texas and the Bakken oil fields will ramp back up.

Oil field/industry workers are well paid, but they also know this is part of the deal.

 

Here in Alberta we are starting to see the effects of the low oil. The energy companies are starting to lay off people. Canada's biggest energy company, Suncor laid off 1000 contractors (technically not a lay off but contracts not renewed). A lot of tradesmen and professional jobs lost, not just rig pigs. All of the majors have announced cuts and hiring freezes.

Last year our city grew by about 40K which has been putting enormous strain our resources, if there is a bright side to this it is that maybe infrastructure can catch up.

The oil sands will not see huge cuts because cost of production is not as high as directional drilling rigs.

My brother in law normally books himself out around 500-600 per day as the guy who runs the drill in the rig office. His rig is shutting down and with Spring thaw, a traditional time to shut down anyway, he figures he is out of work until at least the Summer, longer if prices don't rebound.

Him and his wife are pretty good with their money so should be able to weather this but if you ever wanted to buy a 50K jacked up 4x4, quads, or an RV, there will probably be a fire sale on these in the next few months as 21 year-olds who were over leveraged making 100K or better have now found their incomes drastically reduced and are now scrambling to keep afloat.

As YF said, there are always winners and losers in the economy. As a person who lives in a place driven by resources, I am seeing a lot of people on the losing end. Looking forward to oil being back up to $90 sooner rather than later.

 

There's no state income tax in Tennessee.

 

Incredibly, our sales tax is higher, and we have a state income tax.

 

Are they? At least many of us are against regressive forms of taxation.

 

You've made it pretty clear that you believe fuel taxes are regressive, and don't want to see them any higher (or even as high as they are).

Do you really think that puts you in the majority among liberals?

Urban professionals especially love gas taxes.

Guys like Jay Farrar want higher gas prices, and higher gas taxes.

As a presidential candidate, Senator Obama famously lamented only the speed of the rise in gas prices:

HARWOOD: So could these high prices help us?

Sen. OBAMA: I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing.

CNBC Exclusive: CNBC's Chief Washington Correspondent John Harwood Sits Down with Presidential Candidate Senator Barack Obama (Transcript Included)