Oil supply and prices are a conversation in the daily news, blogs and social media posts for over the past 2 months. Wonder why that is?
Well oil prices have literally been but from approximately $110 dollars a barrel in the beginning of 2014 to below $50 a barrel in the first month of 2015.
How Does this Affect the Consumer?
The positive affects are lower fuel prices which are cleverly being marketed as a tax cut. The negative affects are reduction of jobs and an increase in prices for anything imported from an oil exporting country.
How Will Low Oil Prices Affecting Employment?
The hundreds of thousands of jobs being added over the last 2 – 3 years are largely due to the energy sector for the development and operation of the spider web of pipelines from Canada all the way to Mexico.
The general price per barrel break-even point for these energy companies is between $60 – $80 dollars. So if the current trend of $49 per barrel doesn’t improve, we will literally see the smaller energy companies disappear and the jobs along with them.
How Will the Low Oil Prices Affect Imported Items?
You might be happy about filling up your gas tank for under $50, but you probably won’t be happy about the price increase on all the imported things you buy that eventually will happen if the oil prices don’t stabilize.
Why you ask? It is basic supply and demand. There is an abundance of oil supply on the market, so that is driving the price down.
Now you might ask, Doesn’t OPEC regulate the oil production? Well they certainly do and they are being heavily influenced by Saudi Arabia.
Saudi Arabia is not happy about all these new competitors, so in order to flush them out, they are prepared to take losses estimated in the range of $120B in order to stomp out competition and regain their position.
Now How Does this Affect the Price of Items You Buy that are Imported? Well the oil price is tied heavily to currency exchanges for many oil exporting companies. So if the oil price is down, their currency is weak. To compensate they will increase prices on items that are exported to try and recover some of the difference. In addition, items that we export, we will have to reduce our margins or simply loose on sales which directly affects our GDP.
Stay tuned as this is a subject we will be monitoring closely.
