WAUKESHA - The
price of oil has fallen by nearly 50 percent in the last six
months, a surprisingly steep drop that’s left consumers cheering
but has economists questioning whether this decline is actually
good or bad.
J. Winston Porter, a former assistant
administrator for the Environmental Protection Agency, believes
that although prices are down now, that may not be the case for
the long haul.
“I am not a
big economist, but my feeling is it has overshot the target,” he
said. “It may go down further, but it is going to be really
interesting if it does stay anywhere near this.”
environmental and management consultant told The Freeman Russian
oil producers need to make approximately $100 per barrel just to
break even, but prices are now at just $60 per barrel. He
believes prices will rebound, but he is unsure of when or by how
What is also
unclear is just why prices have dropped so fast, so quickly
without a single, determining cause.
Since 2008 oil
companies in the U.S., for example, have increased production by
70 percent, or 3.5 million barrels of oil per day. To put that
in perspective, that increase alone is more than the production
of any Organization of the Petroleum Exporting Countries member,
other than Saudi Arabia.
average gasoline price has fallen for 81 straight days to $2.55
a gallon - its lowest level since October 2009, according to
AAA. It’s $1.15 a gallon cheaper than its high for the year,
saving U.S. households $100 a month
production was ramping up, turmoil in the Middle East and North
Africa reduced supplies from Libya, Iran and elsewhere. A
balance was struck: Increasing supplies from outside OPEC and
from Iraq’s recovering oil industry helped meet rising demand
around the world as other OPEC supplies wavered.
could be an increase in hydraulic fracturing - or fracking - in
which large quantities of water are pumped into rock in the
earth’s surface to create holes through which natural gas and
oil can be extracted.
“I think there
is a certain amount of momentum in this as (oil prices) start
dropping,” Porter said, “but I think the big thing you put your
hands on is that hydraulic fracturing has lowered the price of
oil and gas tremendously.”
Oil can now be
collected through fracking far more cheaply than traditional
drilling, according to Porter. In just the last three years,
fracturing has been increasingly used to root out oil,
particularly in places like North Dakota - which has gone from
being the 10th largest producer of oil in the U.S. to the 2nd.
The fluids put
into the ground are made up of 90 percent water, approximately 9
percent sand - which is used to hold the fissures open - and
then about half a percent or so of “chemicals.”
“chemicals” have been at the center of the debate around
fracking. Porter said they are largely detergents and other
household substances, but he added that if you don’t disclose
what is in something, people can get nervous, and some companies
and states have not disseminated that information.
companies want to protect their trade secrets that they may have
spent millions on to develop.
prices, failing economy?
prices act like a tax cut and help boost consumer spending,
which in turn accounts for 70 percent of the U.S. economy. But
economists are growing concerned that there may be other, more
troublesome forces at play. The depth of oil’s plunge could be a
signal that the global economy is struggling even more than
economists think. A weak global economy could hurt the U.S.
economy by reducing exports, employment and spending, which
together could outweigh the economic benefits of cheaper fuel.
Porter said in
the future, the United States’ newly-found wealth of oil and
natural gas could be sold to countries who need it in places
like Eastern Europe, where they are held at the behest of the
controlling energy power in the region - the Russians.
“Russia has a
huge bind on Eastern Europe because they control the gas,” he
said. “So they can tell the Ukraine, we are going to double the
price of gas, or you just don’t need it.
“If we could
export some of our extra natural gas to Europe - and they want
it badly - then the Russians certainly have some competition.
This is several years down the road, but it is on the horizon.”
Contributing: The Associated Press