American Elephants


The Hidden Ramifications of a Drop in the Price of a Gallon of Gas by The Elephant's Child

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The price of oil has dived, which is a boon for Americans who are filling up their gas tanks, partly as a result of ‘Fracking,’ and partly because the Saudis have opened the spigot on their oil reserves. For drivers, it’s a wonderful drop in the cost of commuting, and a bit more freedom in the family budget. For oil field workers, it has meant layoffs for many.  For investors in oil futures, it’s scary. For many businesses it’s a drop in their costs and a welcome boost in the bottom line.

For the Saudis, it means that Iran loses money on the sale of their oil because their break-even cost is far higher than the current cost of a barrel of oil. The Saudis fear major attacks by ISIS or Iran. The intricacies of Middle East relationships are fascinating but puzzling. Most Middle East countries are composed of tribes with different religions, different histories and different cultures.

Here at home, an article from Bloomberg Business chronicles just how complicated it all is, yet we need to understand. Laredo, Texas is a border town. One hundred and fifteen million people cross into Texas legally from Mexico every year, most of them just on a shopping expedition. By some estimates those shoppers are responsible for one of every two retail dollars spent in Laredo. They buy jeans, smart phones, toys, products that are more costly or not available in Nuevo Laredo. The peso has dropped 26 percent in relation to the dollar.

What’s different this year is that Eagle Ford, one of the big oil fields behind the surge in U.S. oil output in the past half-decade h as slashed production in response to the drop in the price of oil. Many of the storefronts on the downtown’s main commercial drag, and others near the river are boarded up or braced with metal grids over the windows.  Silvia Guerra’s popular turquoise-colored crepe satin priced at $8.50 a yard, cost Mexicans 127 pesos last year and is 152 pesos today.

Crude prices have plummeted 70 percent since June 2014, idling oil rigs. All Texas border cities are feeling the pinch, but Laredo’s merchants say business is off 50 percent or more.  Laredo has four international bridges, and is the country’s biggest inland port.

Sylvia Guerra’s store has racks of dresses and colorful rolls of fabric, but purchases are rare, and her business is dead. She suspects she will be out of business by May. Her husband has lost his job leasing drilling equipment for Weatherford International Plc. Their daughter is an administrator for Baker Hughes Inc. in San Antonio was told her position is at risk after major layoffs at the oil services company. Their son who supervises fracking operations for C&J Energy Services has seen his paycheck shrink so much he’s looking for an additional part-time job.

It’s just interesting to see how a change in the price of a barrel of oil plays out around the world, and around the country. It’s a lot more complicated than we think.

Today’s price of a gallon of regular gas at the pump, and a year ago:

In Washington State today: $2.09.  A year ago, it was $2.82. In California today: $2,45.  A year ago, it was $3,94. In Texas today, gas is $1.60, a year ago it averaged $2.25. In Ohio, the average is $1.87, down from $2,38 a year ago. And in Pennsylvania, the average today is $1.91, while a year ago it was 2.60. Being close to a refinery helps, as does having a handy oil field in your backyard. As you can see, it is a significant drop in the family budget, depending on how many miles you drive in a week.

Of course state officials have noticed that you aren’t paying quite so much for gas and see this as a dandy opportunity to raise gas taxes.


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