I'm Sorry, But We're All Paying Less for Gas

A story in our local paper talks about the problems of West Texas. This area, the center of the Texas oil industry, is suffering. People are being laid off from the oil fields, because drilling has, as it were, dried up.

No surprise: With the price of oil below $40, and with drilling a supply response to shocks that raise oil prices, it is no longer so profitable to drill new wells — suppliers have moved down along the supply curve.

With that decline, the demand curve for labor, which is derived from the market for oil, has shifted leftward.

I feel sorry for the laid-off oil workers, my fellow Texans and Americans; but the decline in oil prices has also hurt some of my least favorite people — the Saudis and Messrs. Putin and Chavez — so my tears are fairly limited. Also, as with any decline in product price, consumers gain. As usual, a few lose a lot, while each of the many gains a little.

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  1. Elliott says:

    Aren’t the West Texans who are complaining about low oil prices the offspring of those who, during the first gas “crisis” rode around with bumper stickers on their pick up trucks saying “Let the Yankee B______s Freeze in the Dark”?

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  2. EJ says:

    There’s also the payoff:
    cheaper gas= more driving, more greenhouse gases but less drilling in sensitive areas

    Is the price of gas really that important? Or rather do we need to drive as much as we do?

    Why not drive less, consume less stuff but more local services?
    Stay at home, enjoy simple pleasures, eat lower on the food chain, recycle, reduce, refuse.

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  3. KC says:

    The oil money was good — big wages and businesses popping up to support the workers (or fleece ’em, take your pick).

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  4. dsha says:

    Unfortunately, declining oil price has caused quite negative consequences for Russia – since oil accounts for so big share of our exports, our currency, ruble, has lost around 30% of its value since October 2008. Add to this the fact that most goods and food are imported, and you’ll get a sad outlook for Russia.

    So while I’m very far from being a fan of Mr. Putin, I cannot join a celebration of low oil prices. At least while I’m being paid in rubles…

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  5. Caliphilosopher says:

    I’m currently in West Texas for school, and I must tell you, if they think that’s one of the biggest problems out here, then people in West Texas have their heads in the sand – pun intended

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  6. CG Mayell says:

    I don’t feel sorry for the problems of West Texas: In the late seventies, I spent three weeks in West Texas, interviewing people and gathering employment data as part of a larger federally funded study [conducted by USR&E, Inc. for the US Office of Economic Opportunity] to determine if the economic opportunity trickled down to the local population.

    We found that those who benefited from the oil boom, not only the executives who erected suburban houses with pillars, grandiose country clubs, and ugly invasive skyscrapers in the middle of the desert; but those working on the oil rigs, as well as the service industry that sprouted as a result, largely came from outside the area to take advantage of the West Texas boom. [Laura and George Bush grew up in this artificial, self important, racist, gated, new construction, pre-fib world that was Midland Texas.]

    Our study found that the local population did not benefit from the boom. Those who did benefit had come from outside of the area. They erected their pristine neighborhoods and new skyscrapers, restaurants, and posh clothing stores and hired the aggressive and mainly white go-getters who came from outside the region.

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  7. Ben says:

    EJ (#2) –

    You’re getting your wish, people are driving and consuming less, thus our current recession . .

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  8. Craig DeForest says:

    This is just another boom-and-bust cycle of the oil industry, which suffers from delayed equilibria: in the near term, elasticity of oil supply is very limited, and it takes decades and squillions of dollars to change it. (My insider friend at BP likes to point out that their latest Gulf of Mexico drilling platform cost more, even in adjusted dollars, than Project Apollo!)

    The result is that investors frequently take very cold baths when demand shocks hit the system, so companies make decisions based on factor-of-two or factor-of-four fudge factors in price — e.g. if a field is economical to extract at $20/barrel but would take 5-10 years to bring up to speed, your projected price for oil better be something more like $80/barrel before you try to exploit it.

    This is one system where an inefficient cartel seems to be a good idea — by not exploiting their full supply pumping rate, OPEC (well, mostly, the Saudis) held supply in reserve and could suppy elasticity to stabilize the world price. Now that the Saudis’ main fields seem to be operating at capacity, price swings are far more random and bizarre than when they were merely politically motivated…

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