With oil prices beginning to show signs of recovering from 12-year lows, and prices at the pump nearing time-machine-like levels, we reflect on why the oil industry is vital to the American economy, and why higher oil prices might help American oil companies stay competitive.
1. Oil Companies Keep Millions of Americans Employed
According to PwC, via the API, the Oil and Natural Gas industries directly employ 9.8 million Americans combined. That’s nearly 6% of the American workforce! By November of last year, back when oil was a full 33% higher than its recent lows, oil companies worldwide were already laying off swathes of their workforce, with 250,000 jobs cut worldwide, according to OilPrice.com.
Should oil prices remain low, these cuts could be even more drastic and could cause serious employment problems in the US. By the end of December 2015, USA Today reported that, in Texas alone, oil companies had already shed 60,000 jobs and cited experts who “expect the situation to get worse” in the near term.
Even as we enjoy the new, low prices at the pump, it’s worth remembering that those savings come at a cost to the American economy.
2. Low Oil Prices are Bad for Oil Companies, and Might Be Bad for the Environment as Well
One unintended consequence of cheap oil is that it incentivizes consumers to buy cars. Indeed, the cost of gas has hardly been lower in this millennium. So why not splurge for that gas guzzler that once seemed too costly and wasteful? Elon Musk cited low oil prices as critical challenge for entry-level electric car makers who can no longer rely on lifetime cost-savings of an electric vehicle compared to a gas powered one to as a key differentiator, according to CNN.
The diversification of energy options has spurred dramatic jobs growth in new industries like electric vehicles and solar power, and those companies are more competitive in a high-cost oil environment.
3. When Oil Costs More, The American Energy Sector as a Whole is More Competitive
In a world where a small cup of coffee from Starbucks costs more than a gallon of gas at the pump, it’s easy to see why natural gas, coal, hydroelectric, solar, and wind energy companies might struggle to compete. American oil companies themselves might find it difficult maintain operations at a profitable level across all of their wells. When wells lay dormant, it jeopardizes alternative energy production and research, because the cost of these alternative energy sources makes them uncompetitive.
The perfect example of this can be seen in the most recent market rout, where oil prices dropped because supply outstripped demand. As Politico reports, if oil prices return to where they were a year ago, shale investors will have motivation to develop and innovate on natural gas resources. Currently, low oil prices means the demand for other energy sources is proportionally low. In an ideal world, we’d see a solid mix of demand for energy resources, so that every industry is compelled to develop more efficient and environmentally-safe products.
As the market fluctuates and finds equilibrium, oil’s value to the global economy shouldn’t be seen on the price of a barrel. And to keep oil and gas fields running smoothly, Midwest Industrial Supply, Inc. has solutions to reduce the cost of operations. From access roads to county road management, Midwest has over 40 years of experience that will guarantee operators see their oil fields at their peak efficiency.
(Image credit: Svetoslav Nikolov/flickr)