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.


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"?


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.


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


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...


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

CG Mayell

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.



EJ (#2) -

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

Craig DeForest

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...



In response to EJ: There's also the payoff:
cheaper gas= more driving, more greenhouse gases but less drilling in sensitive areas

From what I see on my daily commute, people are not driving more because gas is cheaper. On the contrary, they are driving less because they have lost their jobs. On top of that, companies are shipping less because they are manufacturing less because demand for the products is down because people have lost jobs/income.

Greenhouse gases = people have jobs and the economy is growing


#7 - Isn't part of the reason we're in a recession due to people trying to over-consume (i.e. buy houses with terrible loans that were beyond their means to pay off)?

#9 - Why can't the economy grow and people have jobs while keeping greenhouse gases stagnant or even reducing them? Your equation doesn't hold.


Re: "Greenhouse gases = people have jobs and the economy is growing"

Sure, but what good is all the money (and work) in the world if you can't breathe the air, drink the water, get food from the soil, etc? That's such a narrow view of prosperity that people have when they don't consider the big picture.


The same people who are losing money now on the decline of oil prices, were profiting outrageously when it was around $150 a barrel. Pardon me if I don't weep for profiteers.


I find it offensive that someone can arbitrarily say (on a widely read blog) that the Saudis and Vladimir Putin are some of their least favorite people without providing any documentary justification. (I can forgive him for including Chavez in that group, since Chavez is known to be a thug).

Because, Bush's hands are far bloodier than Putin's. Putin's bellicosity is just a reaction to the corner that the American missile defense system has pushed him into. And the Saudis! What's wrong with them? How many wars have they started? Zilch. The only issue you can find with them is that of women's rights. But then, you are up against an entire religion.

It is more disappointing to google Daniel Hamermesh's name and find that he is actually a professor at UTexas. If the smartest of the smart fall prey to irrational propaganda, then there's little hope for peace on earth.

Henceforth, I shall maintain that Daniel Hamermesh is one of my least favorite people for this very reason.


Larry Gritz

It seems to me that lowering of gas prices is really just a matter of borrowing from future generations. The longer we take to wean ourselves off of fossil fuels and foreign energy sources, the more painful the crash is going to be. I think the moral thing to do is to take our lumps now, not pass them on to our kids and grandkids. Prohibitively high gas prices are going to hurt like the dickins now, but in the long view (100 years, say), the sooner we do it, the better.


Daniel my boy,
You seem to take an odd side on these issues. Perhaps time has pasted you by. The "Saudis and Messrs. Putin and Chavez" have wealth, so a decline in income will barley affect them. As to the plastic water bottles, Sigg water bottles are a superior substitute (http://www.mysigg.com/) and do you tap water. Maybe this was the intent. And your Pareto Optimal example was just lame. Time to move and and stop trying to be cute.


It is worth objecting to the final, orthodox "As usual, a few lose alot, while each of the many gains a little." Doesn't the housing and banking debacle demonstrate the opposite?


Peak oil thoughts, anyone?
Post carbon future?

We might as well get used to less fossil fuels.


I'm surprised there aren't more comments in response to your indiscriminate lumping of a population of 20+ million on your list of least favorites. Surely there's gotta be a few you can tolerate...


What the hell is Caliphilosopher doing in West Texas for school? I'm from there but I left for school. There is nothing there and yes people are being laid off but that's true in every industry in the country right now.


Honestly, i was hoping for a continuation of high oil prices...maye not triple digits, but somewhere along the lines of $80 a barrel just to keep the pressure on.

Granted, i'm happy that Chavez is feeling the heat, i'd say he'll be out by the end of the year if we don't touch $60 again, and russia should calm down a bit now that they're losing leverage. Petropolitics is a nasty thing, what hurts us helps them, yet what helps us kills the environment.

My biggest regret of the drop in oil prices is the halt in talks about environmental issues and renewable energy. No one cares about hydroelectric plants when oilis at $35, when its at $135 though, it starts looking like a gift from teh heavens. Maybe now the president can keep his head straight and push clean energy before we push oil back to the $100 benchmark.