I know that everybody is jumping up and down in celebrating the fact that oil prices have dropped significantly from what it used to be. I personally, know about this celebration process because I’m doing the same myself. There is also good news that the price of oil has fallen and the oil experts don’t know when this decline will come to an end.
All I know is, this trend is making it very nice for many of us, who have to drive every day because it helps us to keep some money in our pockets.
The reason for this drop in oil prices is related to a number of factors. Mostly this is related to the political climate overseas, the internal fighting among the oil barons and the new technology discovered in how to drill for oil.
There is this process called ”fracking, which is mostly a technical method of using hot water to help in extracting oil out of the ground instead of just drilling through the hard gravel. In using this fracking process, through technology hot water is inserted beneath the oil wells and it forces the oil to flow to the surface quicker. At that point, the drilling can be done faster and at a much cheaper price. It’s a little more complicated than this version, but you get an idea that when technology is involved things will change. In using this new process to get oil out of the ground easier, it has revolutionized the oil industry completely.
The oil drilling engineers are using this new method globally and as a result, it has allowed oil drilling to be done easier and allow more players to be in the market.
This activity is causing an oversupply of oil to be available in the marketplace which is good for the consumer like you and me. Anytime you have a surplus of oil made available to the marketplace the price at the pump will be lower.
This is just a brief synopsis of what goes on in the background, of why the oil prices are dropping so fast. The political aspect is a little more complicated and will have to be addressed at another time. At the end of the day, it’s really about the extra supply of oil that we and the more oil that we have, the lower the prices of oil will be for all of us.
After going through so many years where the gas prices kept climbing and some of us had to give up having a car due to the high maintenance cost, we all should be happy with low gas prices. For many of us, gas prices represent a large expense of our budget, so if you have to drive every day to commute to work, you need every break that you can get.
There is another good part of having low gas prices is that you can now afford to take trips that you had previously put on hold. You can go visiting relatives that live far away, go see friends that have moved long distances, people can now take more vacation trips to destinations that they wouldn’t consider before and so on. All these are outstanding benefits that are the result of having lower gas prices.
We also can’t forget about the households that use oil in their homes. As they have been suffering for years trying to survive by battling with the oil companies when the price keeps rising. This is a fantastic benefit to each of them who also uses oil to heat their homes. For example, whenever I go visit some relatives, I will not give their names, I have to make sure that I bring a heavy sweater with me so that I would be comfortable. I dare not tell them that it’s a little chilly in their house, as they may feel offended. You can laugh at me if you want, but I’m sure you have some places that you have visited, where that was the same.
However, what I have highlighted are some of the good benefits of having low oil prices, and there are more but I couldn’t list them all. But, you need to know that there is another side which has a different effect, where the low cost of oil prices will hurt many people in their wallets and in their bank accounts.
The other side of oil economics is all the people on the production and distribution part of having oil be sent to our local communities. There are the drivers of the oil trucks, the oil drillers, the oil refinery plants, the rig diggers, the shipping workers who depend on moving the inventory by water, pipelines and there are so many other aspects that are involved in the oil industry.
On the company side of the oil business, when oil prices drop low, these businesses suffer severely. For example, it causes many oil firms to lay off people, close down drilling operations, reduce their sales workforce, lower their request for shipment of oil from overseas, halt operation of drilling for new wells, and etc. For many of these businesses, they need oil prices to be around $60-70 per barrel, for it to be profitable to remain business according to data from the oil experts. Consequently, as the oil prices have fallen down to currently under $45 per barrel, all these corporations are in jeopardy of going out of business.
If you are on that side of the oil business, you are hurting badly, as the prices keep dropping down your financial risk get worse by the day. It’s not a comfortable place to be in, and I wouldn’t get into any projects that require additional spending. I have provided this analysis to let you know that lower oil prices help consumers like you and me, but it works the opposite for many people who are workers on the business side.
In closing, I sincerely hope that this recap helps you to understand the things that go on behind the scenes, in the oil business. And to also let you know that there are billions of dollars that at state, so don’t believe that these outstanding oil prices will remain low.
The fallout effect will be that many of the smaller energy companies will be taken over by the large firms and that’s how business works. At the end of the day, I wouldn’t go back to my old ways of buying the large vehicles that are gas guzzlers, I wouldn’t sell my electric car, and I wouldn’t remove the solar panels from my roof. You need to beware that the business people behind the oil companies will eventually come back and have their day. Once we reach that period, I strongly believe that these enormous low prices will go back up again when the excess supply of oil input back into control. So keep filling up your tank while you can, and take the extra money from having these low prices and paid down on your debt. In doing so, you would be able to benefit in two ways, at the pump, and in your wallet.