Monday, August 17, 2015

And the band played on

In Saturday's Tribune an article appeared noting, again, the loss of over 3,000 oil industry jobs in Wyoming, and a 50% reduction in certain mineral revenues.


It also noted that the price of oil had declined now to about $40/bbl.  It's now so low, that the Administration is going to authorize trading heavy crude for light crude, with Mexico, which should allow both nations to refine the product more easily.  The thought there, apparently, is that it would reduce unrefined product and get stuff moving, thereby helping to reduce a huge surplus of the product that now exists.

Anyhow, the state economist interviewed noted that, while we are now definitely feeling the impact beyond the oil industry itself (the partial focus of the story), things were not going to get worse.

Oh really?

It's interesting how this type of thinking is so common whenever we experience these downturns, which are sufficiently distant from each other that we truly forget the last time.  Why wouldn't things get worse?  We're just beginning to feel the impact beyond the oil industry itself, coal appears to have declining fortunes and it was pretty ill to start with, revenues to the state from coal, the major source of state funding, is going way down.  Oh, it can get worse.

Indeed, while I basically agree that the price is unlikely to decline further, it sure could.  It had appeared to stabilize at about $50/bbl a couple of months ago, but it's back down.  The deal with Mexico would not really appear to be well calculated to me to address this problem, as all it should really do is aid in the ease of refining of oil.  Opening up oil to export from the United States, which the industry has been pushing for, might, but it might not as well.  And of course the impact of Iranian oil getting an increased share of the market, and the likely Saudi reaction, is hugely problematic.

It's not that I'm rejoicing about this, not at all.  But locally, we tend to really repeat history in this area, which I think those in industry are well aware of, but seemingly others are not.  If the price stabilizes where it is, it'll be a long term trend we'll have to adjust around.  If it doesn't, and continues to go down, things will get worse.  And even if it stabilizes at the present price, or goes back up to around $50/bbl, the impact on other sectors of the economy will still be coming on for several months.

Finally, we have to recall that a story like this doesn't play out the same where everywhere that it does here.  Low oil prices mean low prices at the pump, and indeed driving into town yesterday afternoon I noticed that diesel fuel had dropped below gasoline in price for the first time here in at least a decade.  Not too many people anywhere complain about dropping prices, and dropping fuel prices keep the lid on inflation.  In an era when people's wages haven't been rising, on a national basis, for about 20 years, that's not going to be unwelcome new.  Here, when we complain about this situation we're really complaining to ourselves, as there's very little national sympathy for a drop in oil prices.  It may worry some economic professionals and, ironically given local views, environmentalist, but that's about it.

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